<PAGE> 1
REGISTRATION NO. 333-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1996
- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
ENSTAR INC.
(Exact Name of Registrant as specified in its charter)
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MINNESOTA 3661 41-1831611
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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6475 CITY WEST PARKWAY PETER E. FLYNN
EDEN PRAIRIE, MINNESOTA 55344 EXECUTIVE VICE PRESIDENT
(612) 996-1571 ENSTAR INC.
(Address, including zip code, 6475 CITY WEST PARKWAY
and telephone number, EDEN PRAIRIE, MINNESOTA 55344
including area code, of (612) 996-1571
Registrant's principal (Name, address, including zip code, and
executive offices) telephone number, including area code,
of agent for service)
-------------------------
Copies to:
J. Andrew Herring, Esq.
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after this Registration Statement becomes
effective and the effective time of the proposed merger (the "Merger") of North
Star Universal, Inc. ("NSU") and Michael Foods, Inc. ("Michael") as described in
the Agreement and Plan of Reorganization dated as of December 21, 1995 and
attached as Appendix I to the Proxy Statement/Prospectus forming a part of this
Registration Statement.
-------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
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Common Stock, $.01 par value(1).... 3,357,400 Not Applicable $19,694,000 $6,792.00
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(1) Represents the approximate maximum number of shares issuable upon
consummation of the "Distribution" (as defined and described in the
Registration Statement), based upon the number of shares of NSU Common
Stock outstanding assuming the exercise of stock options for 624,200 shares
of NSU Common Stock and that, in the Distribution, one share of the
Registrant's Common Stock will be issued for every three shares of NSU
Common Stock outstanding.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, based
on the book value of the shares of Registrant's Common Stock as of December
31, 1995 (based on the audited financial statements of Registrant included
in the Proxy Statement/ Prospectus forming a part of this Registration
Statement).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE
INFORMATION REQUIRED BY PART I OF FORM S-4
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FORM S-4
ITEM LOCATION IN PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................ Forepart of the Registration Statement;
Outside Front Cover Page of the
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Available Information; Incorporation of
Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information... Summary; Risk Factors; The
Reorganization; Comparative Per Share
Market Price and Dividend Information
4. Terms of the Transaction............... Summary; The Annual Meeting; The Reor-
ganization; The Reorganization
Agreement; The Distribution Agreement;
Comparison of Rights of NSU
Shareholders Before and After the
Reorganization
5. Pro Forma Financial Information........ Not Applicable
6. Material Contacts with the Company
Being Acquired........................ Summary; The Reorganization; The
Reorganization Agreement; The
Distribution Agreement
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............. Not Applicable
8. Interests of Named Experts and
Counsel............................... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants........................... Not Applicable
11. Incorporation of Certain Information by
Reference............................. Not Applicable
12. Information with Respect to S-2 or S-3
Registrants........................... Not Applicable
13. Incorporation of Certain Information by
Reference............................. Not Applicable
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants..... Business of ENStar; Risk Factors;
Management's Discussion and Analysis of
Results of Operations and Financial
Condition Of ENStar; Directors and
Executive Officers of ENStar
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<PAGE> 3
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<CAPTION>
FORM S-4
ITEM LOCATION IN PROSPECTUS
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies............................. Available Information; Summary;
Incorporation of Documents by Reference
16. Information with Respect to S-2 or S-3
Companies............................. Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies....... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited.... Summary; The Annual Meetings ; The
Reorganization; The Reorganization
Agreement
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer............... Not Applicable
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<PAGE> 4
NORTH STAR UNIVERSAL, INC.
[LETTERHEAD]
5353 WAYZATA BOULEVARD
610 PARK NATIONAL BANK BUILDING
MINNEAPOLIS, MINNESOTA 55416
(612) 546-7500
APRIL , 1996
Dear Shareholders:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
of North Star Universal, Inc. ("NSU") to be held at 4:00 p.m. local time on June
4, 1996, at the Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota.
As you are aware, on December 21, 1995, NSU and Michael Foods, Inc.
("Michael") entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement") pursuant to which (i) NSU Merger Co., a Delaware
corporation and wholly-owned subsidiary of NSU ("Merger Co."), will be merged
with and into Michael and Michael will become a wholly-owned subsidiary of NSU
(the "Merger"), (ii) each stockholder of Michael (other than NSU) will receive,
in exchange for each share of common stock, par value $.01 per share, of Michael
("Michael Common Stock"), held by such stockholder, one share of the common
stock, par value $.01 per share, of NSU ("NSU Common Stock"), (iii) NSU will
change its name to Michael Foods, Inc. (NSU after the consummation of the Merger
is referred to hereinafter as "New Michael") and will continue the business
previously conducted by Michael, (iv) prior to the consummation of the Merger,
NSU will transfer all of its assets and liabilities other than certain
indebtedness and other agreed upon assets and liabilities to another
wholly-owned subsidiary of NSU, ENStar Inc. ("ENStar"), (v) the outstanding
common stock of ENStar will be distributed pro rata by NSU to the shareholders
of NSU of record as of a record date just prior to the effective date of the
Merger (the "Distribution"), and (vi) immediately prior to the effective time of
the Merger, NSU will effectuate a reverse stock split (the "Reverse Stock
Split"), the ratio of the Reverse Stock Split to be determined pursuant to the
terms of the Reorganization Agreement, as described in the accompanying Proxy
Statement/Prospectus under "THE REORGANIZATION -- Effects of the
Reorganization." The above-referenced transactions are herein collectively
referred to as the "Reorganization."
In addition to the election of six directors to the Board of Directors of
NSU, at the Annual Meeting you will be asked to consider and vote upon the
following proposals in connection with the Reorganization:
(i) a proposal to approve the Reorganization Agreement and the Merger;
(ii) a proposal to approve the Reverse Stock Split;
(iii) a proposal to approve the Distribution; and
(iv) a proposal to approve an amendment to the Restated Articles of
Incorporation of NSU (collectively, the "NSU Proposals").
At the same time, Michael shareholders will be meeting to approve the
Reorganization Agreement and the Merger. Your board of directors believes that
the Reorganization is in the best interest of NSU and its shareholders and has
unanimously approved the NSU Proposals. THE BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE NSU PROPOSALS.
Pursuant to an Orderly Disposition and Registration Rights Agreement
between NSU and James H. Michael and Jeffrey J. Michael, each a member of the
Board of Directors of NSU, and two limited partnerships controlled by them (the
"Michael Family Shareholders"), the Michael Family Shareholders, which own an
aggregate of 5,685,100 shares of the outstanding NSU Common Stock (approximately
60.17% of the outstanding shares of NSU Common Stock as of the date hereof) have
agreed to vote in favor of the NSU Proposals. IF THE MICHAEL FAMILY SHAREHOLDERS
VOTE IN ACCORDANCE WITH THAT AGREEMENT, THE APPROVAL OF THE NSU PROPOSALS IS
ASSURED.
<PAGE> 5
Consummation of the Reorganization is subject to certain conditions,
including approval and adoption of the Reorganization Agreement and the Merger
by the affirmative vote of the holders of a majority of the outstanding shares
of Michael Common Stock, the approval of the NSU Proposals by the affirmative
vote of the holders of a majority of the NSU Common Stock, a favorable tax
ruling from the Internal Revenue Service and the receipt of certain approvals
from regulatory authorities.
The accompanying Proxy Statement/Prospectus provides detailed information
concerning the Reorganization, the NSU Proposals, and certain additional
information, which you are urged to read carefully. It is important that your
shares be represented at the annual meeting regardless of the number you hold.
Whether or not you plan to attend the annual meeting, you are requested to
complete, date, sign and return the proxy card in the enclosed postage paid
envelope. You may revoke your proxy at any time prior to its exercise at the
annual meeting by written notice of revocation to the secretary of Michael, by
signing and returning a later dated proxy or by voting in person at the annual
meeting.
Please do not send in your stock certificates at this time. In the event
the Reorganization is consummated, you will be sent a letter of transmittal for
that purpose.
Sincerely,
Jeffrey J. Michael
President and Chief Executive Officer
<PAGE> 6
NORTH STAR UNIVERSAL, INC.
ANNUAL SHAREHOLDERS MEETING
JUNE 4, 1996
4:00 P.M. - 6:00 P.M.
MARRIOTT SOUTHWEST
5801 OPUS PARKWAY
MINNETONKA, MINNESOTA 55343
DIRECTIONS
FROM THE SOUTH
- - 35W North to 494 West
- - 494 West to Highway 169 North
- - Highway 169 North to Londonderry/Bren Road Exit
- - Left on Bren Road
- - Left to Minneapolis Marriott Southwest
FROM THE WEST
- - Highway 5 East to Highway 169 North
- - Highway 169 North to Londonderry/Bren Road Exit
- - Left on Bren Road
- - Left to Minneapolis Marriott Southwest
FROM THE NORTH
- - Highway 169 to Bren Road/Londonderry Exit
- - Right on Bren Road
- - Left on Opus Parkway
- - Left to Minneapolis Marriott Southwest
FROM THE AIRPORT
- - 494 West to Highway 169 North
- - Highway 169 North to Londonderry/Bren Road Exit
- - Left on Bren Road
- - Left to Minneapolis Marriott Southwest
FROM MINNEAPOLIS
- - 35W South to Crosstown 62 West
- - Highway 169 North to Londonderry/Bren Road Exit
- - Left on Bren Road
- - Left to Minneapolis Marriott Southwest
[Map]
<PAGE> 7
NORTH STAR UNIVERSAL, INC.
5353 WAYZATA BOULEVARD
610 PARK NATIONAL BANK BUILDING
MINNEAPOLIS, MINNESOTA 55416
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 1996
-------------------------
To the Shareholders of North Star Universal, Inc.
The 1996 Annual Meeting of Shareholders of North Star Universal, Inc., a
Minnesota corporation ("NSU"), will be held at 4:00 p.m. local time on June 4,
1996 at the Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota for the
following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Reorganization, dated December 21, 1995 (the "Reorganization
Agreement"), between and among NSU, Michael Foods, Inc. ("Michael") and NSU
Merger Co., a wholly owned subsidiary of NSU and a Delaware corporation
("Merger Co."), and the "Merger," as hereinafter defined. Pursuant to the
Reorganization Agreement, (i) Merger Co. will be merged with and into
Michael and Michael will become a wholly-owned subsidiary of NSU (the
"Merger"), (ii) each stockholder of Michael (other than NSU) will receive,
in exchange for each share of the common stock, par value $.01 per share,
of Michael ("Michael Common Stock") held by such stockholder, one share of
common stock, par value $.01 per share, of NSU ("NSU Common Stock"), (iii)
NSU will change its name to Michael Foods, Inc. (NSU after the consummation
of the Merger is referred to hereinafter as "New Michael") and will
continue the business previously conducted by Michael, (iv) prior to the
consummation of the Merger, NSU will transfer all of its assets and
liabilities other than certain indebtedness and other agreed upon assets
and liabilities to another wholly-owned subsidiary of NSU, ENStar Inc.
("ENStar"), (v) the outstanding common stock of ENStar will be distributed
pro rata by NSU to the shareholders of NSU of record as of a record date
prior to the effective date of the Merger (the "Distribution"), and (vi)
immediately prior to the effective time of the Merger, NSU will effectuate
a reverse stock split (the "Reverse Stock Split"), the ratio of the Reverse
Stock Split to be determined pursuant to the terms of the Reorganization
Agreement as described in the accompanying Proxy Statement/Prospectus under
"THE REORGANIZATION -- Effects of the Reorganization."
2. To consider a proposal to approve the Reverse Stock Split;
3. To consider a proposal to approve the Distribution;
4. To consider a proposal to approve an amendment to the Restated
Articles of Incorporation of NSU;
5. To elect six persons to serve as directors during the ensuing year
and until their successors are elected and qualified; and
6. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 15, 1996 as
the record date for the determination of the holders of NSU Common Stock
entitled to notice of, and to vote at, the meeting. The Reorganization
Agreement, the Merger and the other transactions contemplated in the
Reorganization Agreement are more fully described in the accompanying Proxy
Statement/Prospectus, and the appendices thereto, which form a part of this
notice.
Shareholders of NSU Common Stock may assert dissenters' rights under the
Minnesota Business Corporation Act in connection with the Distribution. The
procedures for asserting such dissenters' rights are described in the
accompanying Proxy Statement/Prospectus under the heading "THE REORGANIZATION --
Dissenters' Rights." A copy of the relevant sections of the Minnesota Business
Corporations Act
<PAGE> 8
relating to dissenters' rights is attached to the enclosed Proxy
Statement/Prospectus as Appendix IV. If holders of more than 1% of the
outstanding shares of NSU Common Stock exercise dissenters' rights, NSU has the
right under the Reorganization Agreement not to consummate the transactions
described above.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO ENSURE
YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A POSTAGE PRE-PAID ENVELOPE
IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER ATTENDING THE MEETING MAY VOTE IN
PERSON EVEN IF THAT SHAREHOLDER HAS RETURNED A PROXY.
By Order of the Board of Directors
Peter E. Flynn
Secretary
April , 1996.
2
<PAGE> 9
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to completion, dated March 22, 1996
NORTH STAR UNIVERSAL, INC.
PROXY STATEMENT
-------------------------
ENSTAR INC.
PROSPECTUS
COMMON STOCK
This Proxy Statement and Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of common stock, par value $.25 per share (the "NSU
Common Stock"), of North Star Universal, Inc., a Minnesota corporation ("NSU"),
in connection with the solicitation of proxies by the Board of Directors of NSU
for use at the annual meeting of the shareholders of NSU to be held at the
Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota, on Tuesday, June
4, 1996 at 4:00 p.m. local time and at any and all adjournments or postponements
thereof (the "NSU Annual Meeting"). Certain information in this Proxy Statement
and Prospectus, together with other additional information, is also being
furnished to the holders of common stock, par value $.01 per share (the "Michael
Common Stock"), of Michael Foods, Inc., a Delaware corporation ("Michael"), in
connection with the solicitation of proxies by the Board of Directors of Michael
for use at the 1996 annual meeting of stockholders of Michael to be held at the
Lutheran Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis, Minnesota
on Tuesday, June 4, 1996 at 4:00 p.m. local time, and at any and all
adjournments or postponements thereof (the "Michael Annual Meeting").
On December 21, 1996, NSU and Michael entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") pursuant to which (i) NSU Merger
Co., a Delaware corporation and a wholly-owned subsidiary of NSU ("Merger Co."),
will be merged with and into Michael and Michael will become a wholly-owned
subsidiary of NSU (the "Merger"); (ii) in the Merger, each stockholder of
Michael (other than NSU) will receive, in exchange for each share of Michael
Common Stock held by such stockholder, one share of NSU Common Stock; (iii) NSU
will change its name to Michael Foods, Inc. (NSU after the consummation of the
Merger is referred to hereinafter as "New Michael") and will continue the
business previously conducted by Michael; (iv) prior to the consummation of the
Merger, NSU will transfer all of its assets and liabilities other than certain
indebtedness and other agreed upon assets and liabilities to another
wholly-owned subsidiary of NSU, ENStar Inc. ("ENStar"); (v) the outstanding
common stock, $.01 par value per share, of ENStar ("ENStar Common Stock") will
be distributed pro rata by NSU to the shareholders of NSU of record as of a
record date prior to the effective date of the Merger (the "Distribution"); and
(vi) immediately prior to the effective time of the Merger, NSU will effectuate
a reverse stock split (the "Reverse Stock Split"), the ratio of the Reverse
Stock Split to be determined pursuant to the terms of the Reorganization
Agreement as described below under "THE REORGANIZATION -- Effects of the
Reorganization." The date on which the Merger is consummated is hereinafter
referred to as the "Effective Date," and the time on the Effective Date at which
the Merger is effective is hereinafter referred to as the "Effective Time." The
above transactions are collectively referred to herein as the "Reorganization"
and are discussed in detail herein.
This Proxy Statement/Prospectus also constitutes the prospectus of ENStar
with respect to the issuance of a certain number of shares of ENStar Common
Stock to be issued to the shareholders of NSU in connection with the
Distribution as more fully described herein.
Consummation of the Merger and the other transactions contemplated in the
Reorganization Agreement is subject to various conditions, including the
approval and adoption of the Reorganization Agreement and the Merger by the
holders of a majority of the outstanding shares of Michael Common Stock at the
Michael Annual Meeting and the approval of the NSU Proposals (as defined below)
at the NSU Annual Meeting by the affirmative vote at the NSU Annual Meeting of
the holders of a majority of the outstanding shares of NSU Common Stock. NSU is
the owner of 7,354,950 shares of the Michael Common Stock outstanding or
approximately 38% of the outstanding shares as of the date hereof and has
agreed, subject to certain terms and conditions, to vote in favor of the
Reorganization Agreement and the Merger. Pursuant to an Orderly Disposition and
Registration Rights Agreement between NSU and James H. Michael and Jeffrey J.
Michael, each a member of the Board of Directors of NSU, and two limited
partnerships controlled by them (the "Michael Family Shareholders"), the Michael
Family Shareholders, which own an aggregate of 5,685,100 shares of the
outstanding NSU Common Stock (approximately 60.17% of the outstanding shares of
NSU Common Stock as of the date hereof) have agreed to vote in favor of the NSU
Proposals. IF THE MICHAEL FAMILY SHAREHOLDERS VOTE IN ACCORDANCE WITH THAT
AGREEMENT, THE APPROVAL OF THE NSU PROPOSALS IS ASSURED. SEE "THE
REORGANIZATION."
All information contained in this Proxy Statement/Prospectus with respect
to Michael has been provided by Michael. All information contained in this Proxy
Statement/Prospectus with respect to NSU, Merger Co. and ENStar has been
provided by NSU. This Proxy Statement/Prospectus sent to NSU shareholders is
accompanied by the NSU Annual Report on Form 10-K for the year ended December
31, 1995, which is incorporated herein by reference. See "INCORPORATION OF
DOCUMENTS BY REFERENCE." Michael will provide upon request a copy of its Annual
Report on Form 10-K filed with the Securities and Exchange Commission for its
most recent fiscal year. Such request should be made to the Secretary of Michael
at the address shown below.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Michael and shareholders of NSU on or
about April , 1996. A stockholder/shareholder who has given a proxy may revoke
it at any time prior to its exercise. See "THE ANNUAL MEETINGS."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS APRIL , 1996.
<PAGE> 10
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR INCORPORATED BY
REFERENCE SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Michael and NSU are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549 and may be available at the Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at the New York Regional Office at Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement on Form S-4 and exhibits thereto, including
any amendments (the "Registration Statement"), of which this Proxy
Statement/Prospectus is a part, and which ENStar has filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Reference
is made to such Registration Statement for further information with respect to
ENStar and the securities of ENStar offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission or attached as an
appendix hereto.
INCORPORATION OF DOCUMENTS BY REFERENCE
Michael and NSU hereby incorporate by reference into this Proxy
Statement/Prospectus the following documents previously filed with the
Commission pursuant to the Exchange Act:
1. Michael's Annual Report on Form 10-K for the year ended December
31, 1995; and
2. NSU's Annual Report on Form 10-K for the year ended December 31,
1995.
In addition, all reports and other documents filed by Michael pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the NSU and Michael Annual Meetings shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is incorporated or deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
FROM ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, INCLUDING
ANY BENEFICIAL OWNER, TO, IN THE CASE OF DOCUMENTS RELATING TO MICHAEL, SUITE
324 PARK NATIONAL BANK BUILDING, 5353 WAYZATA BOULEVARD, MINNEAPOLIS, MINNESOTA,
55416; ATTENTION: SECRETARY (TELEPHONE NO. (612) 546-1500) OR IN THE CASE OF
DOCUMENTS RELATING TO NSU, SUITE 610 PARK NATIONAL BANK BUILDING, 5353 WAYZATA
BOULEVARD, MINNEAPOLIS, MINNESOTA, 55416; ATTENTION: SECRETARY, (TELEPHONE NO.
(612) 546-7500). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY MAY , 1996.
2
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TABLE OF CONTENTS
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AVAILABLE INFORMATION........................................................................... 2
INCORPORATION OF DOCUMENTS BY REFERENCE......................................................... 2
SUMMARY......................................................................................... 7
The Companies................................................................................. 7
The Annual Meetings........................................................................... 7
The Reorganization............................................................................ 8
Effect of the Reorganization on Michael Stockholders.......................................... 8
Effect of the Reorganization on NSU Shareholders.............................................. 9
Exchange of Certificates; Distribution of ENStar Common Stock................................. 9
Ownership of New Michael After the Reorganization............................................. 10
Recommendation of Michael Board; Michael's Reasons for the Reorganization..................... 10
Recommendation of NSU Board; NSU's Reasons for the Reorganization............................. 10
Opinions of Financial Advisors................................................................ 10
The Reorganization Agreement.................................................................. 11
The Distribution Agreement.................................................................... 11
The Orderly Disposition Agreement............................................................. 12
Treatment of Michael Stock Options............................................................ 12
Accounting Treatment.......................................................................... 12
Certain Federal Income Tax Considerations..................................................... 13
Regulatory Approvals.......................................................................... 13
Dissenters' Rights............................................................................ 13
Comparative Market Prices And Dividends....................................................... 13
Selected Historical And Unaudited Pro Forma Condensed Combined Financial Information.......... 14
Comparative Per Share Data.................................................................... 16
RISK FACTORS RELATING TO ENSTAR COMMON STOCK.................................................... 18
Limited History of Profitability; Uncertainty of Future Results............................... 18
Product and Service Development Risks......................................................... 18
Expansion Strategy............................................................................ 19
Fluctuations in Quarterly Results............................................................. 19
Dependence on and Need to Recruit and Retain Key Personnel.................................... 20
Concentration of Revenues..................................................................... 20
Dependence on Key Suppliers and Product Supply................................................ 20
Inventory Management.......................................................................... 21
Competition................................................................................... 21
Shares Eligible for Future Sale............................................................... 21
Absence of Prior Public Market and Possible Volatility of Stock Price......................... 21
Possible Volatility of CorVel Stock Price..................................................... 22
Certain Risks Pertaining to the CorVel Common Stock........................................... 22
THE ANNUAL MEETINGS............................................................................. 22
Times and Places; Purposes of Meetings........................................................ 22
Voting Rights; Votes Required for Approval.................................................... 23
Proxies....................................................................................... 24
PROPOSAL NUMBER ONE:
APPROVAL OF THE REORGANIZATION AGREEMENT AND THE MERGER......................................... 26
PROPOSAL NUMBER TWO:
APPROVAL OF THE REVERSE STOCK SPLIT............................................................. 26
PROPOSAL NUMBER THREE:
APPROVAL OF THE DISTRIBUTION.................................................................... 26
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THE REORGANIZATION.............................................................................. 26
Effects of the Reorganization................................................................. 26
Effective Time................................................................................ 27
Background of the Reorganization.............................................................. 28
Recommendation of Michael Board; Michael's Reasons for the Reorganization..................... 29
Recommendation of NSU Board; NSU's Reasons for the Reorganization............................. 30
Fairness Opinions............................................................................. 31
Procedure for Exchange of Certificates........................................................ 36
Distribution of ENStar Common Stock........................................................... 37
Lost, Stolen or Destroyed Certificates........................................................ 38
Escheat and Withholding....................................................................... 38
Interest of Certain Persons in the Reorganization............................................. 38
Accounting Treatment.......................................................................... 39
Certain Federal Income Tax Consequences....................................................... 40
Regulatory Approvals.......................................................................... 41
Listing of New Michael Common Stock; Dividends................................................ 41
Listing of ENStar Common Stock; Dividends..................................................... 41
Effect on Stock Option Plans.................................................................. 41
Federal Securities Laws Consequences.......................................................... 42
Dissenters' Rights............................................................................ 42
THE REORGANIZATION AGREEMENT.................................................................... 44
General....................................................................................... 44
Effects of the Reorganization on the Stockholders of Michael and the Shareholders of NSU...... 45
New Michael Management Following the Reorganization........................................... 46
Conditions.................................................................................... 46
Representations and Warranties................................................................ 47
Certain Covenants............................................................................. 48
Termination................................................................................... 48
Expenses...................................................................................... 49
THE DISTRIBUTION AGREEMENT...................................................................... 49
General....................................................................................... 50
Conditions.................................................................................... 50
The Distribution.............................................................................. 50
Certain Covenants............................................................................. 50
Indemnification............................................................................... 51
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION..................................... 53
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS..................................... 54
Unaudited Pro Forma Condensed Combined Balance Sheet.......................................... 55
Unaudited Pro Forma Condensed Combined Statement of Earnings.................................. 56
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements...................... 57
DESCRIPTION OF NEW MICHAEL CAPITAL STOCK........................................................ 58
Common Stock.................................................................................. 58
Undesignated Stock............................................................................ 58
Transfer Agent and Registrar.................................................................. 58
Business Combination Statute and Control Share Acquisition Act................................ 58
Takeover Offers............................................................................... 59
BUSINESS OF ENSTAR.............................................................................. 59
Unconsolidated Subsidiary..................................................................... 60
Operating Subsidiaries........................................................................ 60
General....................................................................................... 60
Industry...................................................................................... 61
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Business Strategy............................................................................. 62
Products and Services......................................................................... 63
Marketing and Customers....................................................................... 65
Research and Development...................................................................... 66
Manufacturing................................................................................. 66
Competition................................................................................... 66
Properties.................................................................................... 67
Legal Proceedings............................................................................. 67
Net Assets Held For Sale...................................................................... 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
ENSTAR........................................................................................ 68
General....................................................................................... 68
Results of Operations......................................................................... 68
Capital Resources and Liquidity............................................................... 70
COMPARISON OF RIGHTS OF NSU SHAREHOLDERS BEFORE AND AFTER THE REORGANIZATION.................... 71
EXECUTIVE OFFICERS AND DIRECTORS OF ENSTAR...................................................... 72
Executive Officers and Directors of ENStar.................................................... 72
Compensation of Executive Officers of ENStar.................................................. 72
Compensation of Directors of ENStar........................................................... 73
Committees of the Board of ENStar............................................................. 73
1996 Stock Incentive Plan..................................................................... 74
Eizenga Agreement............................................................................. 77
Doan Agreement................................................................................ 78
PROPOSAL NUMBER FOUR:
PROPOSAL TO ADOPT AN AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF NSU................. 78
PROPOSAL NUMBER FIVE:
ELECTION OF NSU DIRECTORS....................................................................... 79
Nominees...................................................................................... 80
Certain Information Regarding the Board of Directors.......................................... 81
Director Compensation......................................................................... 82
Report of the Executive Committee of the Board of Directors on Executive Compensation......... 82
Compensation Committee Interlocks and Insider Participation................................... 83
Summary of Cash and Certain Other Compensation................................................ 84
Stock Options, Awards, Exercises and Holdings................................................. 84
Option Exercises and Holdings................................................................. 84
Employment Contracts and Termination of Employment Arrangements............................... 85
Stock Price Performance Graph and Table....................................................... 86
Compliance with Section 16(a) of the Exchange Act............................................. 86
PRINCIPAL SHAREHOLDERS.......................................................................... 87
AUDITORS........................................................................................ 87
LEGAL MATTERS................................................................................... 87
EXPERTS......................................................................................... 88
SHAREHOLDER PROPOSALS FOR 1997 MEETING OF SHAREHOLDERS.......................................... 88
OTHER MATTERS................................................................................... 88
INDEX TO FINANCIAL STATEMENTS................................................................... F-1
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APPENDIX I Agreement and Plan of Reorganization and Exhibits............................. I-1
Exhibit A Discount Factor
Exhibit B Form of Certificate of Merger
Exhibit C Form of Distribution Agreement
Exhibit D Form of New Articles
Exhibit E Form of Orderly Disposition and Registration Rights Agreement
APPENDIX II Opinion of Piper Jaffray Inc.................................................. II-1
APPENDIX III Opinion of Goldsmith, Agio, Helms Securities Inc.............................. III-1
APPENDIX IV Excerpt from the Minnesota Business Corporation Act regarding Dissenters'
Rights........................................................................ IV-1
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SUMMARY
The following brief summary is intended only to highlight certain
information contained elsewhere in this Proxy Statement/Prospectus. This summary
is not intended to be complete and is qualified in its entirety by the more
detailed information contained elsewhere in this Proxy Statement/Prospectus, the
appendices hereto and the documents incorporated by reference or otherwise
referred to herein. Stockholders of Michael and shareholders of NSU are urged to
review this entire Proxy Statement/Prospectus carefully, including the
appendices hereto and such other documents.
THE COMPANIES
Michael. Michael, a Delaware corporation, together with its subsidiaries,
is a diversified food processor and distributor. Michael's principal products
include egg products, refrigerated grocery products, frozen and refrigerated
potato products and specialty dairy products. Its principal subsidiaries include
M.G. Waldbaum Company, a producer and processor of egg products; Crystal Farms
Refrigerated Distribution Company, a distributor of refrigerated grocery
products; Northern Star Co., a processor of frozen and refrigerated potato
products; and Kohler Mix Specialties, Inc., a processor of specialty dairy
products. The mailing address of Michael's principal executive office is 324
Park National Bank Building, 5353 Wayzata Boulevard, Minneapolis, Minnesota,
55416; its telephone number is (612) 546-1500.
NSU. NSU, a Minnesota corporation, is a holding company. Its principal
subsidiaries are Americable, Inc., ("Americable"), a provider of connectivity
and networking products and services; and Transition Networks, Inc.,
("Transition"), a designer and manufacturer of connectivity devices used in
local area network ("LAN") applications. NSU also owns 7,354,950 shares of
Michael Common Stock, or an approximate 38% interest in Michael, and 1,225,000
shares of common stock of CorVel Corporation ("CorVel"), or an approximate 27%
interest in CorVel, a provider of cost containment and managed care services
designed to address the medical costs of workers' compensation. The mailing
address of NSU's principal executive office is 610 Park National Bank Building,
5353 Wayzata Boulevard, Minneapolis, Minnesota, 55416; its telephone number is
(612) 546-7500.
Merger Co. Merger Co. is a wholly-owned subsidiary of NSU incorporated in
1995 for the sole purpose of consummating the Merger. Merger Co. has not
conducted and will not conduct any substantial business activity. As a result of
the Merger, Merger Co. will cease to exist.
ENStar. ENStar is a wholly-owned subsidiary of NSU incorporated in 1995.
Pursuant to the Distribution Agreement, as hereafter defined, all of the assets
and liabilities other than the Michael Common Stock owned by NSU, all of the
outstanding common stock of Merger Co., cash in an amount determined by NSU, and
a certain amount of NSU indebtedness, will be transferred to ENStar prior to the
Effective Date of the Merger. Immediately after the Effective Time of the
Merger, all of the outstanding ENStar Common Stock will be distributed by NSU
ratably to the shareholders of record of NSU as of a record date prior to the
Effective Date in a tax-free distribution. The mailing address of ENStar's
principal executive office is 6475 City West Parkway, Eden Prairie, Minnesota
55344; its telephone number is (612) 941-7600.
THE ANNUAL MEETINGS
Michael Meeting and Purpose. The Michael Annual Meeting will be held in the
Auditorium of the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota, on Tuesday, June 4, 1996 at 4:00 p.m., local time. See
"THE ANNUAL MEETINGS." At the Michael Annual Meeting, holders of Michael Common
Stock will be asked to approve and adopt the Reorganization Agreement and the
Merger. The Reorganization Agreement is attached hereto as Appendix I. In
addition, the stockholders will elect directors and ratify the appointment of
Michael's independent auditors. It is not expected that other matters will be
presented at the meeting.
Holders of record of Michael Common Stock at the close of business on April
15, 1996 (the "Michael Record Date"), have the right to receive notice of and to
vote at the Michael Annual Meeting. On April 15, 1996, there were 19,379,274
shares of Michael Common Stock outstanding and entitled to vote. Each share of
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Michael Common Stock is entitled to one vote on each matter that is properly
presented to stockholders for a vote at the Michael Annual Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Michael Common Stock is required to approve and adopt the Reorganization
Agreement and Merger. The nine board nominees who receive the highest number of
votes will be elected directors of Michael, and a plurality of votes cast on all
other matters will be required to approve such matters. As of April 15, 1996,
directors, nominees and executive officers of Michael as a group (18 persons)
beneficially owned 8,178,958 shares of Michael Common Stock or approximately
42.2% of the shares outstanding as of such date. Included in this number are
7,354,950 shares of Michael Common Stock, or approximately 38% of the shares
outstanding as of such date, beneficially owned by NSU. See "SECURITY OWNERSHIP
OF MICHAEL AND NEW MICHAEL."
NSU Meeting and Purpose. The NSU Annual Meeting will be held at the
Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota, on Tuesday, June
4, 1996 at 4:00 p.m., local time. See "THE ANNUAL MEETINGS." At the NSU Annual
Meeting, holders of NSU Common Stock will be asked to approve the NSU Proposals
and to elect six persons as directors. It is not expected that other matters
will be presented at the meeting.
Holders of record of NSU Common Stock at the close of business on April 15,
1996 (the "NSU Record Date") have the right to receive notice of and to vote at
the NSU Annual Meeting. On April 15, 1996, there were shares of NSU
Common Stock outstanding and entitled to vote. Each share of NSU Common Stock is
entitled to one vote on each matter that is properly presented to shareholders
for a vote at the NSU Annual Meeting. The affirmative vote of holders of a
majority of the outstanding shares of NSU Common Stock is required to approve
and adopt each of the NSU Proposals. The affirmative vote of a majority of the
shares of NSU Common Stock present (or represented by proxy) and entitled to
vote at the NSU Annual Meeting is required to elect each of the nominees as
directors of NSU for the ensuing year or until the consummation of the
Reorganization. See "THE DISTRIBUTION AGREEMENT". James H. Michael and Jeffrey
J. Michael and two partnerships controlled by them (the "Michael Family
Shareholders") beneficially own approximately 60% of the outstanding shares of
NSU Common Stock and have agreed in the "Orderly Disposition Agreement" as
hereinafter defined, to vote such shares to approve the Reorganization
Agreement, the Merger, the Reverse Stock Split and the Distribution. If the
Michael Family Shareholders vote in accordance with the Orderly Disposition
Agreement, the approval of such matters is assured. See "THE REORGANIZATION --
Interest of Certain Persons in the Reorganization."
As of April 15, 1996, directors and executive officers of NSU as a group
beneficially owned shares of NSU Common Stock, or approximately % of
the shares outstanding as of the NSU Record Date.
THE REORGANIZATION
On December 21, 1995, NSU and Michael entered into the Reorganization
Agreement pursuant to which: (i) Merger Co. will be merged with and into Michael
and Michael will become a wholly-owned subsidiary of NSU; (ii) in the Merger,
each stockholder of Michael (other than NSU) will receive, in exchange for each
share of Michael Common Stock held by such stockholder, one share of NSU Common
Stock; (iii) NSU will change its name to Michael Foods, Inc. and will continue
the business previously conducted by Michael; (iv) prior to the consummation of
the Merger, NSU will transfer all of its assets and liabilities other than
certain indebtedness and other agreed upon assets and liabilities to ENStar; (v)
the outstanding common stock of ENStar will, conditioned on the consummation of
the Merger, be distributed pro rata to the shareholders of NSU of record as of a
record date prior to the Effective Date of the Merger; and (vi) immediately
prior to the Effective Time of the Merger, NSU will effectuate the Reverse Stock
Split, the ratio of the Reverse Stock Split to be determined pursuant to the
terms of the Reorganization Agreement, as described below under "THE
REORGANIZATION -- Effects of the Reorganization."
EFFECT OF THE REORGANIZATION ON MICHAEL STOCKHOLDERS
Upon the consummation of the Merger, each outstanding share of Michael
Common Stock, other than the Michael Common Stock owned by NSU, will be
converted into the right to receive one share of NSU
8
<PAGE> 17
Common Stock, which, after the Reorganization, is also referred to herein as New
Michael Common Stock. See "THE REORGANIZATION -- Effects of the Reorganization"
and "THE REORGANIZATION AGREEMENT -- Effects of the Reorganization on the
Stockholders of Michael and the Shareholders of NSU." For a description of the
New Michael Common Stock, see "DESCRIPTION OF NEW MICHAEL CAPITAL STOCK." For a
summary of the principal differences between the rights of holders of NSU Common
Stock before and after the Reorganization, see "COMPARISON OF RIGHTS OF NSU
SHAREHOLDERS BEFORE AND AFTER THE REORGANIZATION."
EFFECT OF THE REORGANIZATION ON NSU SHAREHOLDERS.
Reverse Stock Split. Immediately prior to the Effective Time, NSU will
effect the Reverse Stock Split whereby each outstanding share of NSU Common
Stock will be combined into a fraction of one share of NSU Common Stock
determined by multiplying each such share by a fraction where the denominator is
the number of outstanding shares of NSU Common Stock immediately prior to the
Effective Date, and the numerator is the number of shares of Michael Common
Stock owned by NSU at such date less the number of shares of Michael Common
Stock owned by NSU which are retired in consideration for the assumption of the
"Net Indebtedness," as hereinafter defined, of NSU by New Michael. The amount of
the Net Indebtedness of NSU to be retained by New Michael is equal to the sum of
the subordinated debentures, subordinated fixed-term time certificates,
subordinated extendible time certificates and bank debt of NSU outstanding
immediately prior to the Effective Time plus the "Dissenting Shares Holdback,"
as hereinafter defined, less any cash retained by NSU at the Effective Time of
the Merger. Pursuant to the terms of the Reorganization Agreement, the amount of
the Net Indebtedness may not be less than $25 million or more than $38 million.
The Dissenting Shares Holdback is the amount mutually agreed by Michael and NSU
as a reserve to pay for the shares of NSU Common Stock as to which dissenters'
rights properly have been exercised. See "THE REORGANIZATION -- Effects of the
Reorganization" and "THE REORGANIZATION AGREEMENT -- Effects of the
Reorganization on the Stockholders of Michael and the Shareholders of NSU."
Distribution. Prior to the Effective Date, NSU will transfer all of its
assets and liabilities other than the Michael Common Stock owned by NSU, all of
the outstanding common stock of Merger Co., cash in an amount to be determined
by NSU and a certain amount of NSU indebtedness to ENStar and declare a
contingent dividend of all of its ENStar Common Stock, payment of which will be
subject to the prior consummation of the Merger. Immediately after the Effective
Time, the ENStar Common Stock will be distributed by NSU as a tax-free dividend
to NSU shareholders of record as of a record date prior to the Effective Date.
See "THE DISTRIBUTION AGREEMENT." Holders of Michael Common Stock will not
receive any ENStar Common Stock as a result of the Reorganization.
EXCHANGE OF CERTIFICATES; DISTRIBUTION OF ENSTAR COMMON STOCK
As soon as practicable after the Effective Date, The First National Bank of
Boston, or another person mutually designated by Michael and NSU, in its
capacity as exchange agent for the Merger and the Reverse Stock Split (the
"Exchange Agent"), will send a transmittal letter to each holder of Michael
Common Stock and each holder of NSU Common Stock as of the Effective Date. The
transmittal letter will contain instructions with respect to the surrender of
certificates representing the Michael Common Stock and NSU Common Stock to be
exchanged for certificates evidencing the New Michael Common Stock in the
Merger. On or prior to the Effective Date, NSU will deliver to its Exchange
Agent certificates representing all of the outstanding shares of ENStar Common
Stock. Immediately after the Effective Time, NSU will deliver to such Exchange
Agent instructions to distribute, as promptly as practicable following the
Effective Date, to each holder of record of NSU Common Stock on the record date
for the Distribution, stock certificates evidencing one share of ENStar Common
Stock for every three shares of NSU Common Stock held of record by such holder
on such record date and cash in lieu of any fractional shares of ENStar Common
Stock. See "THE REORGANIZATION -- Procedure for Exchange of Certificates."
MICHAEL STOCKHOLDERS AND NSU SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. MICHAEL
STOCKHOLDERS AND NSU SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
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OWNERSHIP OF NEW MICHAEL AFTER THE REORGANIZATION
Following the Reorganization, NSU's only assets will consist of all of the
outstanding capital stock of Michael, certain contractual rights and retained
cash. In order to avoid confusion, on the Effective Date, NSU will change its
name to Michael Foods, Inc. and transactions in New Michael Common Stock will
continue to be reported on the Nasdaq National Market under the symbol MIKL.
Michael will change its name to Michael Foods of Delaware, Inc. At the date of
this Proxy Statement/Prospectus, NSU owns, directly and beneficially, 7,354,950
shares of the outstanding common stock of Michael, or approximately 38% of such
securities. Holders of Michael Common Stock immediately prior to the Merger,
excluding NSU, will own directly and beneficially approximately 77.4% to 67.6%
of New Michael Common Stock outstanding immediately after the Merger depending
upon the amount of the Net Indebtedness retained by New Michael.
Correspondingly, NSU shareholders immediately prior to the Merger will own,
directly and beneficially, approximately 22.6% to 32.4% of the outstanding New
Michael Common Stock immediately after the Merger.
RECOMMENDATION OF MICHAEL BOARD; MICHAEL'S REASONS FOR THE REORGANIZATION
The Board of Directors of Michael (the "Michael Board") (with James H.
Michael, Jeffrey J. Michael and Miles E. Efron, each of whom is also a director
of NSU, having recused themselves from any discussions of and vote on the
proposed transaction), has determined that the Reorganization is in the best
interest of Michael and recommends that the holders of Michael Common Stock vote
in favor of the Reorganization Agreement and the Merger. The decision of the
Michael Board to enter into the Reorganization and to recommend that its
stockholders vote in favor of the Reorganization Agreement and the Merger is
based upon its evaluation of a number of factors, including, among others, the
opinion of Piper Jaffray Inc. ("Piper Jaffray") that the consideration given up
by Michael in the form of the Net Indebtedness retained by New Michael after the
Merger, in exchange for the shares of Michael Common Stock held by NSU that will
be retired in the Merger, and the exchange of Michael Common Stock for NSU
Common Stock, is fair to Michael from a financial point of view. See "THE
REORGANIZATION -- Recommendation of Michael Board; Michael's Reasons for the
Reorganization;" and "THE REORGANIZATION -- Fairness Opinions."
RECOMMENDATION OF NSU BOARD; NSU'S REASONS FOR THE REORGANIZATION
The Board of Directors of NSU (the "NSU Board"), by unanimous vote,
determined that the consummation of the Reorganization, including the Merger,
the Reverse Stock Split and the Distribution, is in the best interest of the
holders of NSU Common Stock and recommends that the holders of NSU Common Stock
vote in favor of the NSU Proposals. The decision of the NSU Board to enter into
the Reorganization Agreement and to make the foregoing recommendations is based
upon its evaluation of a number of factors including, among others, the opinion
of Goldsmith, Agio, Helms Securities Inc. ("GAHS"), that the Reorganization is
fair to the Shareholders of NSU from a financial point of view. See "THE
REORGANIZATION -- Recommendation of NSU Board; NSU's Reasons for the
Reorganization;" and "THE REORGANIZATION -- Fairness Opinions."
OPINIONS OF FINANCIAL ADVISORS
Michael. On December 21, 1995, Piper Jaffray rendered to the Michael Board
its oral and written opinion to the effect that, based upon and subject to the
matters set forth in its written opinion, as of such date, that the
consideration given up by Michael in exchange for the shares of Michael Common
Stock held by NSU that will be retired in the Merger, and the exchange of
Michael Common Stock for NSU Common Stock is fair to Michael from a financial
point of view. The full text of the written opinion of Piper Jaffray dated as of
the date of this Proxy Statement/Prospectus, which sets forth the assumptions
made, factors considered and scope of the review undertaken by Piper Jaffray, is
included as Appendix II to this Proxy Statement/Prospectus. Michael stockholders
are urged to read such opinion carefully in its entirety. See "THE
REORGANIZATION -- Fairness Opinions."
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NSU. On December 21, 1995, GAHS rendered to the NSU Board its oral and
written opinion to the effect that the Reorganization is fair to NSU's
shareholders from a financial point of view. The full text of the written
opinion of GAHS, dated as of the date of this Proxy Statement/Prospectus, which
sets forth the assumptions made, factors considered and limitations on the
review undertaken by GAHS is included as Appendix III to this Proxy
Statement/Prospectus. NSU shareholders are urged to read such opinion carefully
in its entirety. See "THE REORGANIZATION -- Fairness Opinions."
THE REORGANIZATION AGREEMENT
Representations, Warranties and Covenants. The Reorganization Agreement
contains various representations and warranties of NSU and Michael relating to
the organization and operations of such entities. See "THE REORGANIZATION
AGREEMENT -- Representations and Warranties." In the Reorganization Agreement,
NSU and Michael have made certain covenants with respect to the conduct of their
respective businesses and certain actions to be taken between the date of the
Reorganization Agreement and the Effective Date. See "THE REORGANIZATION
AGREEMENT -- Certain Covenants."
Conditions to the Reorganization. The obligations of Michael and NSU to
consummate the transactions contemplated under the Reorganization Agreement are
subject to various conditions including, but not limited to: (i) the accuracy of
representations and warranties of the other party; (ii) the receipt of a
favorable ruling from the Internal Revenue Service (the "IRS") that the Merger,
the Reverse Stock Split and the Distribution will not result in taxable gain or
loss; (iii) the effectiveness of the registration statement filed with the
Commission under the Securities Act with regard to the shares of NSU Common
Stock to be exchanged for Michael Common Stock (the "NSU Registration
Statement") and of a registration statement filed with the Commission under the
Securities Act with regard to the shares of ENStar Common Stock to be
distributed in the Distribution (the "ENStar Registration Statement"); (iv)
obtaining requisite stockholder and shareholder approvals; (v) the absence of
any injunction or other order that would prohibit or make illegal the
consummation of the Reorganization Agreement; (vi) the approval of Nasdaq for
the trading of New Michael Common Stock and the ENStar Common Stock on the
Nasdaq National Market; (vii) holders of fewer than 1% of the issued and
outstanding NSU Common Stock effectively electing statutory dissenters' rights;
and (viii) obtaining requisite governmental and third party consents. See "THE
REORGANIZATION AGREEMENT -- Conditions."
Termination. The Reorganization Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented to the stockholders of Michael or the shareholders of NSU at their
respective Annual Meetings: (i) by mutual written consent of the Boards of
Directors of Michael and NSU; (ii) by either party, if any of the conditions to
such party's obligation to complete the transactions become impossible to
satisfy; (iii) by either party if the requisite stockholder vote or shareholder
vote has not been obtained; (iv) by either party if the transactions have not
been completed on or before September 30, 1996; (v) by NSU if the "Average Price
of Michael Common Stock," as hereinafter defined, is less than $11.00 per share;
(vi) by Michael if the Average Price of Michael Common Stock is more than $17.00
per share; and (vii) by either party if any representation or warranty of the
other party becomes untrue, subject to certain exceptions. Under certain
circumstances, Michael or NSU may recover from the other party out-of-pocket
costs, including fees and expenses of attorneys, accountants and investment
bankers, up to an aggregate of $500,000 if the Reorganization Agreement is
terminated by the other party. Entitlement to such reimbursement is the sole and
exclusive remedy of a party for any termination of the Reorganization Agreement.
See "THE REORGANIZATION AGREEMENT -- Termination," and "THE REORGANIZATION
AGREEMENT -- Expenses."
THE DISTRIBUTION AGREEMENT
The Distribution Agreement is attached to the Reorganization Agreement as
Exhibit C and included as a part of Appendix I of this Proxy
Statement/Prospectus. The Reorganization Agreement provides that NSU will, and
will cause ENStar to, execute and deliver the Distribution Agreement prior to
the Effective Date. The Distribution Agreement requires NSU to contribute and
transfer to ENStar or an ENStar subsidiary all of NSU's right, title and
interest in and to all of NSU's assets except for certain assets to be retained
by New
11
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Michael. In addition, ENStar will assume and has agreed to pay, perform and
discharge all liabilities of NSU arising at any time prior to the Effective
Time, other than certain liabilities retained by New Michael. The Distribution
is expressly conditioned on the prior consummation of the Merger and the
satisfaction of certain other conditions set forth in the Distribution
Agreement. In the Distribution, each NSU shareholder of record on the record
date for the Distribution will receive one share of ENStar Common Stock for
every three shares of NSU Common Stock held by such holder on such date, which
date will be prior to the Effective Date and prior to the Reverse Stock Split.
The Distribution Agreement also requires ENStar and New Michael to indemnify
each other for certain losses and liabilities arising before or after the
Effective Time. See "THE DISTRIBUTION AGREEMENT."
THE ORDERLY DISPOSITION AGREEMENT
Concurrently with the execution of the Reorganization Agreement, the
Michael Family Shareholders, which own an aggregate of 5,685,100 shares of the
outstanding NSU Common Stock (approximately 60% of the outstanding shares of NSU
Common Stock as of the date hereof), and NSU entered into that certain Orderly
Disposition and Registration Rights Agreement, dated December 21, 1995 (the
"Orderly Disposition Agreement"). The Orderly Disposition Agreement is attached
as Exhibit E to the Reorganization Agreement and included as part of Appendix I
of this Proxy Statement/Prospectus. Under the Orderly Disposition Agreement, the
Michael Family Shareholders have agreed, among other things, to vote the shares
of NSU Common Stock owned by them in favor of the NSU Proposals. The Michael
Family Shareholders have also agreed to refrain for a period of two years after
the Merger from selling, pledging or otherwise disposing of any of the shares of
New Michael Common Stock owned by them if the purchaser of such shares owns or
would own more than five percent of the outstanding New Michael Common Stock,
unless New Michael is first given an opportunity to purchase such shares. The
disposition restrictions do not apply if a tender offer is made for all of the
outstanding New Michael Common Stock. In addition, the Michael Family
Shareholders are entitled during such two year period to certain registration
rights under the Securities Act with respect to the New Michael Common Stock
owned by them. Finally, during such two year period, the Michael Family
Shareholders will be entitled to designate two nominees for the Board of New
Michael (the "New Michael Board") if they collectively own ten percent or more
of the outstanding New Michael Common Stock and one nominee for director if
their ownership is below ten percent. The Michael Family Shareholders' initial
designees to the New Michael Board are Jeffrey J. Michael and Miles E. Efron.
See "THE REORGANIZATION -- Interest of Certain Persons in the Reorganization."
TREATMENT OF MICHAEL STOCK OPTIONS
The Reorganization Agreement obligates New Michael to assume all existing
stock option plans of Michael and the stock award portion of Michael's Executive
Incentive Plan. Outstanding Michael stock options will be converted into options
to purchase New Michael Common Stock and, to the extent exercisable, may be
exercised at the stated exercise price and for an equal number of shares of New
Michael Common Stock. At April 15, 1996, Michael had granted options under these
Plans to purchase 2,054,331 shares, of which options for 1,643,904 shares were
currently exercisable. See "THE REORGANIZATION -- Effect on Stock Option Plans."
All outstanding stock options for NSU Common Stock will be exercised or canceled
prior to the Effective Time.
ACCOUNTING TREATMENT
The Merger will be accounted for as a business combination utilizing the
reverse acquisition method with Michael being the accounting acquiror under
generally accepted accounting principles. As such, the Merger will be treated as
an acquisition using the purchase method of accounting with no change in the
recorded amount of Michael's assets and liabilities. The assets and liabilities
of NSU that are acquired as a result of the Merger will be recorded at their
fair market values. The ENStar assets and liabilities, following the
Distribution, will be recorded at their historic amounts as recorded in the
books and records of NSU. See "THE REORGANIZATION -- Accounting Treatment."
12
<PAGE> 21
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The obligations of Michael and NSU to consummate the Reorganization are
subject to the receipt of the following favorable rulings from the IRS:
(i) The Merger will be treated as a tax-free reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that no gain or loss will be recognized by
any Michael stockholder upon receipt of New Michael Common Stock
pursuant to the Merger.
(ii) The Reverse Stock Split will not be treated as a stock distribution,
or a transaction that has the effect of such a distribution, to which
Sections 301, 305(b) or 305(c) of the Code apply. Accordingly, no
taxable income will be recognized under such Sections by any of the
shareholders of NSU, except for cash paid in lieu of fractional
shares.
(iii) The Distribution will qualify as a tax-free distribution under
Sections 355 and 368(a)(1)(D) of the Code, and that no gain or loss
will be recognized by any NSU shareholder upon the receipt of ENStar
Common Stock pursuant to the Distribution (except upon the receipt of
cash by an NSU shareholder in lieu of fractional shares of ENStar
Common Stock).
See "THE REORGANIZATION -- Certain Federal Income Tax Consequences."
REGULATORY APPROVALS
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules
and regulations thereunder, which provide that certain transactions may not be
consummated until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
("FTC") and the requisite waiting period has expired or is terminated. NSU and
Michael intend to file the required information and materials with the antitrust
division and the FTC effective prior to the end of April 1996, and the requisite
waiting period will expire prior to the end of May 1996, unless earlier
terminated. See "THE REORGANIZATION -- Regulatory Approvals."
DISSENTERS' RIGHTS
Holders of Michael Common Stock are not entitled to dissenters' or
appraisal rights in connection with the Reorganization. Holders of NSU Common
Stock who do not vote in favor of the Distribution and who file a written
objection thereto with NSU prior to the NSU Annual Meeting or at such meeting,
but before the vote is taken, and who have otherwise complied with Section
302A.473 of the Minnesota Business Corporations Act (the "MBCA") will be
entitled to certain dissenters' rights. See "THE REORGANIZATION -- Dissenters'
Rights." If holders of more than 1% of the outstanding shares of NSU Common
Stock exercise dissenters' rights, NSU has the right under the Reorganization
Agreement not to consummate the Reorganization.
COMPARATIVE MARKET PRICES AND DIVIDENDS
Michael Common Stock is traded on the Nasdaq National Market under the
symbol MIKL. NSU Common Stock is traded on the Nasdaq National Market under the
symbol NSRU and the Pacific Stock Exchange under the symbol NSU. On December 20,
1995, the last full trading day preceding public announcement of the proposed
transactions, the closing price per share of Michael Common Stock reported by
the Nasdaq National Market was $10.88 and the closing price per share of NSU
Common Stock reported by the Nasdaq National Market was $6.00. On April ,
1996, the most recent practical date prior to the printing of this Proxy
Statement/Prospectus, the closing price per share of Michael Common Stock
reported by the Nasdaq National Market was $ and the closing price per share
of NSU Common Stock reported by Nasdaq National Market was $ .
13
<PAGE> 22
The payment of future dividends on New Michael Common Stock will be a
business decision to be made by the New Michael Board from time to time based
upon the results of operations and the financial condition of New Michael and
such other factors as the New Michael Board considers relevant. See "COMPARATIVE
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION."
No market currently exists for the ENStar Common Stock. ENStar has applied
to have the ENStar Common Stock approved for quotation on the Nasdaq National
Market under the symbol "ENSR." No assurance can be given that an active market
will develop or continue for the ENStar Common Stock. Management of ENStar
currently intends to retain any earnings for use in its operations and does not
anticipate paying any cash dividends in the foreseeable future.
New Michael expects to continue the Nasdaq National Market listing of NSU
Common Stock, but will use the symbol MIKL, rather than NSRU, and will
discontinue the listing of the New Michael Common Stock on the Pacific Stock
Exchange.
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
Selected Michael Historical Consolidated Financial Information. The
following table sets forth certain selected historical consolidated financial
information of Michael that has been derived from and should be read in
conjunction with Michael's consolidated financial statements, including the
notes thereto, which are incorporated by reference in this Proxy
Statement/Prospectus:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales................................. $536,627 $505,965 $474,783 $442,734 $454,735
Cost of sales............................. 454,652 430,917 414,965 390,185 380,270
-------- -------- -------- -------- --------
Gross profit.............................. 81,975 75,048 59,818 52,549 74,465
Selling, general and administrative
expenses................................ 45,729 41,851 39,122 36,936 34,217
Disposal of product line.................. -- -- 22,769 -- --
Restructuring charges..................... -- -- 11,164 -- --
-------- -------- -------- -------- --------
45,729 41,851 73,055 36,936 34,217
-------- -------- -------- -------- --------
Operating profit (loss)................... 36,246 33,197 (13,237) 15,613 40,248
Interest expense, net..................... 7,635 8,498 8,363 9,588 9,511
-------- -------- -------- -------- --------
Earnings (loss) before income taxes....... 28,611 24,699 (21,600) 6,025 30,737
Income tax expense (benefit).............. 11,020 9,510 (5,280) 2,175 11,070
-------- -------- -------- -------- --------
Net earnings (loss)....................... $ 17,591 $ 15,189 $(16,320) $ 3,850 $ 19,667
======== ======== ======== ======== ========
Net earnings (loss) per share............. $ 0.91 $ 0.79 $ (0.84) $ 0.20 $ 1.07
======== ======== ======== ======== ========
Weighted average shares outstanding....... 19,328 19,315 19,416 19,516 18,400
Dividends per common share................ $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
BALANCE SHEET DATA (END OF PERIOD)
Working capital........................... $ 42,095 $ 33,589 $ 22,267 $ 54,826 $ 58,988
Total assets.............................. 359,227 336,645 329,087 370,218 357,171
Long-term debt, including current
maturities.............................. 101,421 100,604 104,008 135,798 120,645
Stockholders' equity...................... 180,095 166,029 155,003 177,037 176,321
</TABLE>
14
<PAGE> 23
Selected NSU Historical Consolidated Financial Information. The following
table sets forth certain selected historical consolidated financial information
of NSU that has been derived from and should be read in conjunction with NSU's
consolidated financial statements, including the notes thereto, which are
incorporated by reference in this Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................................. $ 54,891 $ 47,193 $ 46,756 $ 42,025 $ 37,007
Operating income (loss)................... 484 (784) (2,143) (1,610) (1,475)
Interest expense, net..................... (4,120) (4,194) (4,223) (4,175) (4,351)
Income (loss) from continuing operations
before income taxes, and equity in
earnings (loss) of unconsolidated
subsidiaries............................ (3,636) (4,978) (6,366) (5,785) 2,738
Income (loss) from continuing
operations.............................. 3,090 1,410 (13,563) (2,070) 11,261
Income (loss) from discontinued
operations.............................. (3,025) (2,084) 1,691 433 (960)
-------- -------- -------- -------- --------
Net income (loss)......................... $ 65 $ (674) $(11,872) $ (1,637) $ 10,301
======== ======== ======== ======== ========
Income (loss) per common and common
equivalent share:
Income (loss) from continuing
operations.............................. $ 0.32 $ 0.15 $ (1.44) $ (0.22) $ 1.11
Discontinued operations................... (0.31) (0.22) 0.18 0.05 (0.10)
-------- -------- -------- -------- --------
Net income (loss)......................... $ 0.01 $ (0.07) $ (1.26) $ (0.17) $ 1.01
======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD)
Total assets.............................. $110,234 $111,093 $108,607 $115,873 $116,355
Long-term debt, including current
maturities.............................. 42,480 45,061 43,194 41,849 41,451
Shareholders' equity...................... 34,481 34,196 34,675 61,083 63,246
</TABLE>
Selected Enstar Historical Combined Financial Information. The following
table sets forth certain selected historical combined financial information of
ENStar, currently an operating unit of NSU, that has been derived from and
should be read in conjunction with ENStar's combined financial statements,
including the notes thereto, which are incorporated by reference in this Proxy
Statement/Prospectus:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................................. $54,891 $47,193 $46,756 $42,025 $37,007
Operating income (loss)................... 1,033 (702) (1,978) (1,151) (666)
Interest expense, net..................... (247) (348) (361) (373) (415)
Income (loss) before income taxes and
equity in earnings of unconsolidated
subsidiary.............................. 786 (1,050) (2,339) (1,524) (1,081)
-------- -------- -------- -------- --------
Net income (loss)......................... $ 1,572 $ 286 $(1,524) $ (550) $ (302)
======== ======== ======== ======== ========
Pro forma net income (loss) per
share(1)................................ $ 0.49 $ 0.09 $ (0.48) $ (0.17) $ (0.10)
======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD)
Total assets.............................. $35,251 $32,243 $30,222 $30,318 $29,497
Long-term debt, including current
maturities.............................. 1,246 3,607 3,443 3,898 3,323
Operating unit equity..................... 19,694 18,176 17,035 17,262 16,737
</TABLE>
- -------------------------
(1) Pro forma income (loss) per share was computed using the weighted average
number of outstanding shares of NSU Common Stock during each period
presented and assuming that, in the Distribution, one share of ENStar Common
Stock was distributed for every three shares of the weighted average
outstanding NSU Common Stock, without taking into account any fractional
shares.
15
<PAGE> 24
Selected Unaudited Pro Forma Condensed Combined Financial Information of
New Michael. The following table sets forth certain selected unaudited pro forma
condensed combined financial information of New Michael and has been derived
from, or prepared on a basis consistent with, the unaudited pro forma condensed
combined financial statements included elsewhere in this Proxy
Statement/Prospectus. The unaudited pro forma condensed combined balance sheet
information and the unaudited pro forma condensed combined statement of earnings
information set forth below has been prepared as if the Reorganization was
consummated on December 31, 1995 and January 1, 1995, respectively. See
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS." This data is
presented for illustrative purposes only and is not indicative of the combined
results of operations or financial position that would have occurred if the
Reorganization had been consummated at the beginning of the period presented or
on the date indicated, nor is it necessarily indicative of future operating
results or financial position of New Michael.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
PRO FORMA STATEMENT OF EARNINGS DATA
Revenues......................................... $ 536,627
Operating profit................................. 36,146
Net earnings..................................... $ 16,277
========
Net earnings per share........................... $ 0.97
========
PRO FORMA BALANCE SHEET DATA (END OF PERIOD)
Working capital.................................. $ 42,095
Total assets..................................... 358,427
Long-term debt, including current maturities..... 128,882
Stockholders' equity............................. 151,834
</TABLE>
COMPARATIVE PER SHARE DATA
The unaudited pro forma per share data set forth in the following tables is
derived from, and should be read in conjunction with, the historical
consolidated or combined financial statements of Michael, NSU and ENStar
(currently an operating unit of NSU), the respective notes thereto, which are
incorporated by reference into this Proxy Statement/Prospectus and the pro forma
condensed combined financial information, including the notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus. See "UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS." The per share data set forth below is presented
for informational purposes only, and is not necessarily indicative of the
results of the future operations of New Michael or ENStar.
Michael Per Share Data. The following table presents selected historical
and pro forma per share data for Michael Common Stock before and after
consummation of the Reorganization.
<TABLE>
<CAPTION>
MICHAEL NEW MICHAEL
HISTORICAL PRO FORMA(1)
---------- ------------
<S> <C> <C>
Book value at December 31, 1995....................................... $ 9.32 $ 9.05
Dividends paid for the year ended December 31, 1995................... $ .20 $ .20(2)
Net earnings for the year ended December 31, 1995..................... $ .91 $ .97
</TABLE>
16
<PAGE> 25
NSU Per Share Data. The following table presents selected historical and
pro forma per share data for NSU Common Stock before and after consummation of
the Reorganization. The ENStar pro forma per share data assumes NSU shareholders
are issued one share of ENStar for each three shares of NSU Common Stock they
own. The New Michael pro forma per share data assumes that, in the Reverse Stock
Split, each NSU shareholder will receive .51 shares of New Michael Common Stock
for each share of NSU Common Stock held by such shareholder at the Effective
Time. See "THE REORGANIZATION -- Effects of the Reorganization."
<TABLE>
<CAPTION>
NSU ENSTAR NEW MICHAEL PRO FORMA
HISTORICAL PRO FORMA(3) PRO FORMA(4) COMBINED(5)
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Book value at December 31, 1995............... $ 3.65 $ 2.08 $ 4.62 $6.70
Net income from continuing operations for the
year ended December 31, 1995................ $ 0.32 $ 0.16 $ 0.49 $0.65
</TABLE>
- -------------------------
(1) These pro forma per share amounts represent the interest of a holder of a
share of Michael Common Stock in New Michael after the Merger. The pro forma
book value computation utilizes the book value of New Michael divided by the
number of outstanding shares of New Michael Common Stock reduced by
2,560,594 Retired Michael Shares. The pro forma net earnings computation for
the year ended December 31, 1995, utilizes the net earnings of New Michael
and the weighed average shares of Michael Common Stock reduced by 2,560,594
Retired Michael Shares. See "THE REORGANIZATION -- Effects of the
Reorganization" for a hypothetical calculation of such number of Retired
Michael Shares.
(2) The calculation of pro forma dividends paid per share assumes the same per
share dividend was paid.
(3) These pro forma per share amounts represent the interest of a holder of a
share of NSU Common Stock in ENStar's per share book value and the net
income from continuing operations after the Distribution. The book value per
share and net income from continuing operations per share amounts represent
the book value and net income from continuing operations, respectively, of
ENStar divided by the number of outstanding shares of NSU Common Stock at
December 31, 1995 for the book value computation and weighted average number
of outstanding shares of NSU Common Stock for the year ended December 31,
1995 for the net income from continuing operations computation.
(4) These pro forma per share amounts represent the interest of a holder of a
share of NSU Common Stock in New Michael per share book value and net income
from continuing operations after the Merger. The pro forma book value
computation is computed by dividing New Michael pro forma stockholder equity
by the number of shares of outstanding New Michael Common Stock after
reduction for the Retired Michael Shares (19,332,001, the historical
outstanding shares of Michael at December 31, 1995, less 2,560,594 Retired
Michael Shares), this product is then adjusted for an assumed Reverse Stock
Split ratio of .51 shares of New Michael Common Stock for every outstanding
share of NSU Common Stock. The pro forma income from continuing operations
computation is computed by dividing the New Michael pro forma net earnings
by the New Michael weighted average shares outstanding (19,328,000, the
historical weighted average shares of Michael Common Stock as of December
31, 1995, less 2,560,594 Retired Michael Shares), this product is then
adjusted for an assumed Reverse Stock Split ratio of .50 shares of New
Michael Common Stock for every outstanding share of NSU Common Stock. The
Reverse Stock Split ratios differ in these computations due to the use of
the actual number of shares outstanding for the book value computation and
the weighted average shares outstanding for the net income from continuing
operations computation.
(5) The pro forma combined amounts are the total of the ENStar and the New
Michael pro forma per share amounts.
17
<PAGE> 26
RISK FACTORS RELATING TO ENSTAR COMMON STOCK
In addition to the other information contained in or incorporated by
reference into this Proxy Statement/Prospectus, NSU's shareholders should
consider the following risk factors regarding ENStar and the ENStar Common Stock
that such shareholders will receive in the Distribution. All references herein
to ENStar are intended to include the operating unit of NSU that will be
transferred to ENStar in connection with the Distribution.
LIMITED HISTORY OF PROFITABILITY; UNCERTAINTY OF FUTURE RESULTS
ENStar has a limited history of profitability. ENStar experienced operating
losses during 1991, 1992, 1993 and 1994. During 1995, ENStar generated operating
income of approximately $1 million. Americable derives its revenues from three
primary lines of business: networking products and services, cable and
connectivity products and cable assemblies. Americable has recently increased
the focus of its business on network services and its cable assembly business,
which are generally more profitable. No assurance can be made, however, that
Americable will be successful in increasing revenues from its network services
and its cable assemblies. In addition, Americable continues to make significant
investments in new sales, engineering and technical personnel.
Transition's ability to maintain its present level of sales and its
historical sales growth is highly dependent upon its ability to offer new
products that meet customer's demands in a rapidly changing market, particularly
in light of the relatively short life cycle of its products. In order to achieve
market acceptance of new products, Transition plans to continue its investment
in research and development expenses. Transition had research and development
expenses of approximately $1,440,000 in 1995. There can be no assurance,
however, that its research and development efforts will result in commercially
successful new products in the future. In addition, Transition believes that
sales and marketing expenses will continue to increase in terms of absolute
dollars in an effort to differentiate its products and enhance its competitive
position.
These anticipated increases in operating expenses at both Americable and
Transition may result in lower operating profit at ENStar, if the companies are
unable to maintain their respective current gross profit margins and continued
sales growth. Further, if Americable is not successful in generating higher
volumes of service revenues, its operating margins will decline and its ability
to maintain its current operating profitability could be materially adversely
affected. Based on the above factors, there can be no assurance that ENStar will
be able to increase or sustain its profitability on a quarterly or annual basis
in the future.
PRODUCT AND SERVICE DEVELOPMENT RISKS
With respect to Transition, the market for networking products is subject
to rapid technological change, evolving industry standards and frequent new
product introductions and, therefore, requires a high level of expenditures for
research and development. Transition may be required to incur significant
expenditures to develop such product offerings. There can be no assurance that
Transition will be successful in identifying, sourcing, developing and marketing
product enhancements or new products that respond to this rapidly changing
market. Also, there can be no assurance that its product enhancements and new
products will adequately meet the requirements of the marketplace and achieve
market acceptance. A critical factor in market acceptance of product
enhancements and new products is the timely introduction of such products and
enhancements in order to take advantage of existing market opportunities.
Transition has, in the past, experienced delays in the introduction of certain
of its new products and enhancements.
The markets for Americable's products and services are also characterized
by rapidly changing technology and frequent new product and service offerings by
its competitors. The introduction of new technologies can render existing
products and services obsolete or unmarketable. Americable's continued success
will depend on its ability to enhance existing products and services and to
develop and introduce, on a timely and cost-effective basis, new products and
services that keep pace with technological developments and address increasingly
sophisticated customer requirements.
18
<PAGE> 27
ENStar's business, financial condition and results of operations could be
materially adversely affected if Transition were to incur delays in developing
or introducing new products or product enhancements or if such new products or
product enhancements did not gain market acceptance or in the event that
Americable were to incur delays in sourcing and developing new products and
services or that these products and services would achieve market acceptance.
EXPANSION STRATEGY
ENStar's expansion strategy includes both internal growth and the
identification and pursuit of acquisition opportunities at Americable.
Americable currently operates in six locations and the success and the rate of
Americable's expansion into new geographical markets will depend on a number of
factors, including general economic and business conditions affecting the
industries of Americable's customers in such markets, competition, the
availability of sufficient capital, the availability of sufficient inventory to
meet customer demand, and the ability to attract and retain qualified personnel
and operate effectively in geographic areas in which Americable has no prior
experience. As a result, there can be no assurance that Americable will be able
to achieve its planned expansion on a timely or profitable basis.
With respect to Americable's identification and pursuit of acquisition
opportunities, viable acquisition candidates may not be available or not
available on terms acceptable to Americable. Furthermore, Americable has not
engaged in any significant acquisitions recently, and no assurance can be made
that Americable will be able to successfully acquire or integrate the operations
of another business into the operations and business of Americable. Americable
has no present commitments, agreements or understandings with respect to any
acquisitions.
If Americable continues to grow, it may be required to make further
investments in personnel and information technology systems. Failure to
successfully hire or retain such personnel or implement such systems could have
a material adverse effect on ENStar's results of operations and financial
condition. There can be no assurance that Americable will be able to manage its
expanding operations effectively, that it will be able to maintain or accelerate
its recent growth or that Americable will be able to continue to operate
profitably.
FLUCTUATIONS IN QUARTERLY RESULTS
ENStar's quarterly revenues and operating results have varied significantly
in the past and will likely continue to do so in the future. Quarterly revenues
and operating results may fluctuate as a result of the demand for Americable's
and Transition's products and services, the introduction of new hardware and
software technologies offering improved features, the introduction of new
products and services by competitors, changes in the level of operating
expenses, competitive conditions and economic conditions generally.
At Americable, the purchase of its products and services generally involves
a significant commitment of capital, with the delays frequently associated with
large capital expenditures and required authorization procedures within an
organization. For these and other reasons, Americable's operating risks are
subject to a number of risks over which it has little or no control, including
customers' technology life cycle needs, budgetary constraints and internal
authorization reviews. Further, Americable is increasing its operating expenses,
including an increase in personnel, based on anticipated revenue growth in its
networking line of business.
A variety of factors may cause period-to-period fluctuations in the
operating results of Transition. Such factors include, but are not limited to,
product mix, competitive pricing pressures, material costs and timely
availability, revenue and expenses related to new product introductions, as well
as delays in customer purchases in anticipation of new products or enhancements
by Transition or its competitors. Further, Transition plans to continue to
invest in research and development, sales and marketing and technical support
staff.
ENStar's operating results could be adversely affected if it is unable to
adjust spending sufficiently in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, ENStar believes that period-to-period
comparisons of its operating results should not be relied upon as an indication
of future performance.
19
<PAGE> 28
In addition, the results of any quarterly period are not indicative of results
to be expected for a full fiscal year. It is possible that in certain future
quarters, ENStar's operating results may be below the expectations of public
market analysts and investors. In such event, the price of ENStar's Common Stock
would likely be materially adversely affected.
DEPENDENCE ON AND NEED TO RECRUIT AND RETAIN KEY PERSONNEL
ENStar's success depends to a significant extent on its ability to attract
and retain key personnel. In particular, Americable and Transition are dependent
on their respective engineering and technical personnel. Competition for such
technical personnel is intense and no assurance can be given that ENStar will be
able to recruit and to retain such personnel. The failure to recruit and to
retain management and technical personnel could have a material adverse effect
on ENStar's anticipated growth, revenues and results of operations.
CONCENTRATION OF REVENUES
During 1995, one customer accounted for approximately 11% of Americable's
net sales, and in 1994, a different customer accounted for approximately 11% of
net sales. No other customers accounted for more than 10% of Americable's
revenues. In addition, Americable derived approximately 61% of its revenues from
its 100 largest customers. While Americable seeks to build long-term customer
relationships, revenues from any particular customer can fluctuate from period
to period due to such customer's purchasing patterns.
Transition distributes its products through an expanding network of
reseller channels, which include a number of regionally based domestic and
international volume distributors and, to a lesser extent, value added
resellers. In 1995, Americable was Transition's largest domestic customer
accounting for approximately 14% of domestic net sales (9% overall).
Transition's largest international customer accounted for approximately 11% of
international net sales (4% overall). Moreover, the ten distributors that sold
the largest amount of Transition's products accounted for approximately 39% of
Transition's net sales for 1995.
Any termination or significant disruption of the companies' relationships
with a number of its principal customers could have a material adverse effect on
ENStar's business, financial condition and results of operations. In addition, a
deterioration in the financial condition of any of its principal customers could
expose ENStar to the possibility of large accounts receivable write-offs, which
would adversely affect ENStar's financial condition and results of operations.
DEPENDENCE ON KEY SUPPLIERS AND PRODUCT SUPPLY
The networking industry has experienced product supply shortages and
customer order backlogs due to the inability of certain manufacturers to supply
certain products on a timely basis. In addition, certain suppliers have
initiated new channels of distribution that increase competition for the
available product supply. There can be no assurance that suppliers will be able
to maintain an adequate supply of products to fulfill Americable's and
Transition's customer orders on a timely basis. Both Americable and Transition
have experienced product supply shortages in the past and expect to experience
such shortages from time to time in the future. Failure to obtain adequate
product supplies or fulfill customer orders on a timely basis could have a
material adverse effect on ENStar's business, financial condition, and results
of operations.
A significant portion of Americable's revenues is derived from sales of
network hardware, including products of various major suppliers. During 1995
approximately 19% of the Americable's sales represented products manufactured by
Bay Networks, Inc. ("Bay Networks"). Americable's agreements with those
suppliers from which it purchases products directly generally contain provisions
for periodic renewals and for termination by the supplier without cause,
generally upon relatively short notice. Although Americable believes its
supplier relationships are good, there can be no assurance that Americable's
relationships will continue as presently in effect. The loss of a major
supplier, the deterioration of Americable's relationship with a major supplier
or the failure of Americable to establish good relationships with major new
suppliers as they develop could have a material adverse effect on ENStar's
business.
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INVENTORY MANAGEMENT
The networking industry is characterized by rapid product improvement and
technological change resulting in relatively short product life cycles and rapid
product obsolescence, which can place inventory at considerable valuation risk.
Some of Transition's products include components that are currently available
from limited sources and require long order lead times. Because of the long lead
times along with Transition's desire to be responsive to customer demand,
Transition has maintained higher inventory levels compared to other networking
manufacturers. Due to the ongoing risk of product obsolescence and changes in
customer demand, there can be no assurances that Transition will be able to
successfully manage its existing and future inventories.
Although it is industry practice for Americable's suppliers to provide
price protection to Americable intended to reduce the risk of inventory
devaluation, such policies are subject to change. Americable also has the option
of returning, subject to certain limitations, a percentage of its current
product inventories each quarter to certain manufacturers as it assesses each
product's current and forecasted demand. The amount of inventory that can be
returned to suppliers varies under Americable's agreements and such return
policies may provide only limited protection against excess inventory. There can
be no assurance that suppliers will continue such policies, that unforeseen new
product developments will not affect Americable adversely or that Americable can
successfully manage its existing and future inventories. Any inventory
adjustments could adversely affect ENStar's financial condition and results of
operations.
COMPETITION
Each of ENStar's businesses face substantial competition from a large
number of companies, some of which are larger, have greater financial resources,
broader name recognition and, in many cases, lower product and operating costs
than ENStar.
The industry in which Transition operates is highly competitive, and
Transition believes that such competition will continue to intensify. The
industry is characterized by rapid technological change, short product
life-cycles, frequent product introductions and evolving industry standards.
Transition competes with a number of independent companies focused on the LAN
market, including companies with significantly greater financial resources, more
extensive business experience, and greater market and service capabilities than
Transition. There can be no assurance that ENStar will be able to compete
successfully.
ENStar expects to face further competition from new market entrants and
possible alliances between competitors in the future. Certain of ENStar's
current and potential competitors have greater financial, technical, marketing
and other resources than ENStar. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products and services than ENStar. No assurance can be given that ENStar will be
able to compete successfully against current and future competitors. See
"BUSINESS OF ENStar -- Competition."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of ENStar Common Stock in the
public market following the Distribution could adversely affect the market price
for the ENStar Common Stock. Upon consummation of the Reorganization the Michael
Family Shareholders, in the aggregate, will beneficially own approximately
1,895,000 shares, or approximately 60%, of the outstanding ENStar Common Stock.
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the ENStar
Common Stock. There can be no assurance that, following this offering, an active
trading market for the ENStar Common Stock will develop or be sustained,
particularly in light of the limited number of shares being distributed in the
Distribution. The market price of the ENStar Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results, changes in the market value of its CorVel investment, changes in
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<PAGE> 30
earnings estimates by analysts, general conditions in the industries in which
ENStar's customers compete and other events or factors. In addition, the stock
market, from time to time, has experienced extreme price and volume fluctuations
which have particularly affected the market price for companies in ENStar's and
CorVel's industries, and which have often been unrelated to the operating
performance of such companies. These broad fluctuations may adversely affect the
market price of the ENStar Common Stock.
POSSIBLE VOLATILITY OF CORVEL STOCK PRICE
CorVel, in its reports and other information prepared and filed by it with
the Commission, has indicated that the market price of the CorVel Common Stock
may be highly volatile. CorVel has also indicated that factors such as
variations in CorVel's revenues, earnings and cash flow, general market trends
in the workers' compensation managed care market, and announcements of
innovations by CorVel or its competitors could cause the market price of the
CorVel Common Stock to fluctuate substantially. Specifically, CorVel has
reported that the quarter to quarter percentage growth in operating results for
CorVel's two most recently completed fiscal quarters was lower than the growth
rates historically experienced by CorVel. CorVel's slower growth rate in those
two fiscal quarters was partially attributable to a reduction in the growth rate
of health care expenditures nationally, contributing to a reduction in claims
processed by CorVel. There can be no assurance that CorVel's growth rate in the
future, if any, will be at or near historical levels. In addition, the stock
market has in the past experienced price and volume fluctuations that have
particularly affected companies in the health care and managed care markets
resulting in changes in the market price of the stock of many companies which
may not have been directly related to the operating performance of those
companies. Such broad market fluctuations may adversely affect the market price
of the CorVel Common Stock, which in turn may adversely affect the market price
of the ENStar Common Stock.
CERTAIN RISKS PERTAINING TO THE CORVEL COMMON STOCK
CorVel, in its reports and other information prepared and filed by it with
the Commission, has indicated that an investment in the CorVel Common Stock
involves a high degree of risk, including the potential adverse impact of
government regulations, possible litigation and legal liability, competition,
changes in market dynamics, dependence on key personnel and risks related to
CorVel's growth strategy. These risks are described in more detail in the
reports and other information prepared and filed by CorVel with the Commission.
THE ANNUAL MEETINGS
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of Michael Common Stock by the
Michael Board for use at the Michael Annual Meeting and (ii) from the holders of
NSU Common Stock by the NSU Board for use at the NSU Annual Meeting. All
information contained in this Proxy Statement/Prospectus relating to Michael has
been furnished by Michael. All information contained in this Proxy
Statement/Prospectus relating to NSU, Merger Co. or ENStar has been supplied by
NSU.
TIMES AND PLACES; PURPOSES OF MEETINGS
Michael. The Michael Annual Meeting will be held at The Lutheran
Brotherhood Auditorium, 625 Fourth Avenue South, Minneapolis, Minnesota on
Tuesday, June 4, 1996 at 4:00 p.m. local time. At the Michael Annual Meeting,
the stockholders of Michael will be asked to consider and vote upon the
following items: (i) a proposal to approve the Reorganization Agreement and the
Merger (the "Michael Proposal"), (ii) a proposal to elect nine directors to the
Michael Board, (iii) the ratification of the selection of auditors, and (iv)
such other business as may properly come before the Michael Annual Meeting. The
Reorganization Agreement is included as Appendix I to this Proxy
Statement/Prospectus.
NSU. The NSU Annual Meeting will be held at the Marriott Southwest, 5801
Opus Parkway, Minnetonka, Minnesota on Tuesday, June 4, 1996 at 4:00 p.m. local
time. At the NSU Annual Meeting, the shareholders of NSU will be asked to
consider and vote upon the following items: (i) a proposal to approve the
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<PAGE> 31
Reorganization Agreement and the Merger; (ii) a proposal to approve the Reverse
Stock Split; (iii) a proposal to approve the Distribution; (iv) a proposal to
approve the New Articles; (v) a proposal to elect six directors to the NSU
Board; and (vi) such other business as may properly come before the NSU Annual
Meeting (proposals (i) through (iv) above are collectively referred to herein as
the "NSU Proposals").
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
Michael. The Michael Board has fixed the close of business on April 15,
1996, as the Michael Record Date. Only holders of record of shares of Michael
Common Stock on the Michael Record Date are entitled to notice of and to vote at
the Michael Annual Meeting. As of April 15, 1996, there were 19,379,274 shares
of Michael Common Stock outstanding and entitled to vote held by approximately
stockholders of record.
Each holder of record, as of the Michael Record Date, of Michael Common
Stock is entitled to cast one vote per share. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of Michael Common
Stock entitled to vote is necessary to constitute a quorum at the Michael Annual
Meeting.
Under Delaware law, the affirmative vote, in person or by proxy, of the
holders of a majority of the shares of Michael Common Stock outstanding on the
Michael Record Date is required to approve and adopt the Michael Proposal. The
nine board nominees who receive the highest number of votes will be elected
directors of Michael and a plurality of votes cast on all other matters will be
required to approve such matters.
As of April 15, 1996, directors, nominees and executive officers of Michael
as a group (18 persons) beneficially owned 8,178,958 shares of Michael Common
Stock, or approximately 42.2% of those shares of Michael Common Stock
outstanding as of such date. As of April 15, 1996, NSU beneficially owned
7,354,950 shares of Michael Common Stock or approximately 38% of the shares of
Michael Common Stock outstanding as of such date. The Michael shares
beneficially owned by NSU are included in the shares beneficially owned by
directors and executive officers.
THE BOARD OF DIRECTORS OF MICHAEL RECOMMENDS THAT HOLDERS OF MICHAEL COMMON
STOCK VOTE FOR THE MICHAEL PROPOSAL AND FOR EACH OF THE NOMINEES FOR ELECTION TO
THE BOARD OF DIRECTORS OF MICHAEL.
NSU. The NSU Board has fixed the close of business on April 15, 1996 as the
NSU Record Date. Only holders of record of shares of NSU Common Stock on the NSU
Record Date are entitled to notice of and to vote at the NSU Annual Meeting. On
April 15, 1996, there were shares of NSU Common Stock outstanding and
entitled to vote at the NSU Meeting held by approximately shareholders of
record.
Each holder of record, as of the NSU Record Date, of NSU Common Stock is
entitled to cast one vote per share. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of NSU Common Stock entitled to
vote is necessary to constitute a quorum at the NSU Annual Meeting.
Under Minnesota law, the affirmative vote, in person or by proxy, of the
holders of a majority of the shares of NSU Common Stock outstanding on the NSU
Record Date and entitled to vote is required to approve and adopt the NSU
Proposals. The affirmative vote of a majority of the shares of NSU Common Stock
present or represented by proxy and entitled to vote at the NSU Annual Meeting
is required to elect each of the nominees as Directors of NSU for the ensuing
year or until the consummation of the Reorganization.
As of April 15, 1996, directors and executive officers of NSU as a group
beneficially owned approximately shares of NSU Common Stock or
approximately % of NSU Common Stock outstanding as of the NSU Record Date.
The Michael Family Shareholders beneficially owned 5,685,100 shares of NSU
Common Stock, or approximately 60% of the NSU Common Stock outstanding as of the
NSU Record Date, and have agreed in the Orderly Disposition Agreement to vote
such shares in favor of each of the Merger, the Reverse Stock Split and the
Distribution. See "THE REORGANIZATION -- Interest of Certain Persons in the
Reorganization."
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THE BOARD OF DIRECTORS OF NSU UNANIMOUSLY RECOMMENDS THAT HOLDERS OF NSU
COMMON STOCK VOTE FOR EACH OF THE NSU PROPOSALS AND FOR EACH OF THE NOMINEES FOR
ELECTION TO THE BOARD OF DIRECTORS OF NSU.
PROXIES
Michael. Votes cast by proxy or in person at the Michael Annual Meeting
will be tabulated by the election inspector appointed for the meeting. All
shares of Michael Common Stock represented by properly executed proxies received
prior to or at the Michael Meeting and not revoked will be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated on a properly executed returned proxy, such proxy will be voted FOR
the Michael Proposal. A properly executed proxy marked "ABSTAIN" (or a proxy
marked "withhold vote for" as to the election of directors), although counted
for purposes of determining whether there is a quorum, will not be voted.
Accordingly, since the affirmative vote of a majority of the shares of Michael
Common Stock on the Michael Record Date represented in person or by proxy and
entitled to vote is required for approval of the Michael Proposal, a properly
executed proxy marked "ABSTAIN" will have the effect of a vote against the
Michael Proposal. If a broker indicates on a proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
NSU. Votes cast by proxy or in person at the NSU Annual Meeting will be
tabulated by the election inspector appointed for the meeting. All shares of NSU
Common Stock represented by properly executed proxies received prior to or at
the NSU Meeting and not revoked will be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated on a
properly executed returned proxy, such proxy will be voted FOR the NSU
Proposals. A properly executed proxy marked "ABSTAIN" (or a proxy marked
"withhold vote for" as to the election of directors), although counted for
purposes of determining whether there is a quorum, will not be voted.
Accordingly, since the affirmative vote of a majority of the shares of NSU
Common Stock outstanding on the NSU Record Date, represented in person or by
proxy and entitled to vote, is required for approval of each of the NSU
Proposals, a properly executed proxy marked "ABSTAIN" with respect to any such
proposal will have the effect of a vote against such proposal. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect that matter.
It is not expected that any matter not referred to herein will be presented
for action at the Michael and NSU Annual Meetings. If any other matters are
properly brought before the Michael Annual Meeting or the NSU Annual Meeting,
the persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment. However, shares represented by proxies that
have been voted "AGAINST" the Michael Proposal, or any of the NSU Proposals, as
the case may be, will not be used to vote "FOR" postponement or adjournment of
the Michael Annual Meeting or the NSU Annual Meeting, as the case may be, for
the purpose of allowing additional time for soliciting additional votes "FOR"
the Michael Proposal or the NSU Proposals, as the case may be. The grant of a
proxy will also confer discretionary authority on the persons named in the proxy
as proxy appointees to vote in accordance with their best judgment on matters
incident to the conduct of the Annual Meetings, including (except as stated in
the preceding sentence) adjournment for the purpose of soliciting additional
votes.
Revocation of Proxies. A stockholder or shareholder giving a proxy may
revoke it at any time prior to the voting of the proxy by filing with the
secretary of Michael or NSU, as the case may be, a written notice of revocation
or another proxy bearing a later date. Unless otherwise noted on the proxy, the
proxies will vote FOR the proposals set forth herein. Any written notice of
revocation or subsequently dated Michael proxy should be mailed or delivered to
Michael Foods, Inc., 324 Park National Bank Building, 5353 Wayzata Boulevard,
Minneapolis, Minnesota 55416; Attention: Secretary. Any written notice of
revocation or subsequently dated NSU proxy should be mailed or delivered to
North Star Universal, Inc., 610 Park National Bank Building, 5353 Wayzata Blvd.,
Minneapolis, MN 55416, Attention: Secretary. A stockholder or shareholder may
also revoke his or her proxy by attending the Michael Annual Meeting or the NSU
Annual Meeting and voting in person. Attendance at the Michael Annual Meeting or
the NSU Annual Meeting will not in itself constitute the revocation of a proxy.
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Solicitation of Proxies. Each party will bear its own costs with respect to
the Annual Meetings including the cost of preparing, assembling and mailing the
Notice of Annual Meeting, this Proxy Statement/ Prospectus and the form of
proxy, including the reimbursement of banks, brokers and other nominees for
forwarding proxy materials to beneficial owners. Proxies may also be solicited
personally or by telephone by directors, officers and regular employees of
Michael or NSU who will receive no additional compensation.
THE MATTERS TO BE CONSIDERED AT THE MICHAEL AND NSU ANNUAL MEETINGS ARE OF
IMPORTANCE TO THE MICHAEL STOCKHOLDERS AND THE NSU SHAREHOLDERS. ACCORDINGLY,
MICHAEL STOCKHOLDERS AND NSU SHAREHOLDERS ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
HOLDERS OF MICHAEL AND NSU COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING MICHAEL OR NSU COMMON STOCK WITH THE ENCLOSED PROXY CARD. IF THE
TRANSACTIONS ARE APPROVED, A LETTER OF TRANSMITTAL WILL BE MAILED AFTER THE
EFFECTIVE TIME TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES IMMEDIATELY
PRIOR TO THE EFFECTIVE TIME. STOCKHOLDERS AND SHAREHOLDERS SHOULD SEND
CERTIFICATES REPRESENTING COMMON STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY
RECEIVE, AND IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE LETTER OF
TRANSMITTAL.
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PROPOSAL NUMBER ONE: APPROVAL OF THE REORGANIZATION
AGREEMENT AND THE MERGER
PROPOSAL NUMBER TWO: APPROVAL OF THE REVERSE STOCK SPLIT
PROPOSAL NUMBER THREE: APPROVAL OF THE DISTRIBUTION
THE REORGANIZATION
The following information describes certain aspects of the Reorganization.
This description does not purport to be complete and is qualified in its
entirety by reference to the Appendices hereto, including the Reorganization
Agreement and the exhibits thereto, which are attached to this Proxy
Statement/Prospectus as Appendix I and are incorporated herein by reference. All
shareholders are urged to read Appendix I in its entirety. See also "THE
REORGANIZATION AGREEMENT."
EFFECTS OF THE REORGANIZATION
Prior to the consummation of the Merger, NSU will contribute all of its
assets and liabilities other than certain indebtedness and other agreed upon
assets and liabilities to ENStar. See "THE REORGANIZATION AGREEMENT -- Effects
of the Reorganization on the Stockholders of Michael and the Shareholders of
NSU." Upon consummation of the Reorganization on the Effective Date of the
Merger: (i) Merger Co. will be merged with and into Michael and Michael will
become a wholly-owned subsidiary of NSU; (ii) each stockholder of Michael (other
than NSU) will receive, in exchange for each share of Michael Common Stock held
by such stockholder, one share of New Michael Common Stock; (iii) NSU will
change its name to Michael Foods, Inc. and will continue the business previously
conducted by Michael; (iv) NSU will effectuate the Reverse Stock Split; and (v)
NSU will effectuate the Distribution, whereby all of the outstanding ENStar
Common Stock will be distributed pro rata to the shareholders of NSU of record
as of a record date just prior to the Effective Date of the Merger.
As part of the negotiations with respect to the structure of the
Reorganization, Michael requested that, in order to avoid confusion on the part
of holders of Michael Common Stock, in the Merger each holder of Michael Common
Stock would receive one share of NSU Common Stock in exchange for each share of
Michael Common Stock held by such stockholder. In order to accommodate this
request, the Reorganization was structured so that the number of outstanding
shares of NSU Common Stock would be reduced through the Reverse Stock Split. In
the Reverse Stock Split, each outstanding share of NSU Common Stock will be
converted into a fraction of one share of New Michael Common Stock determined by
multiplying each such share by a fraction where the denominator is the number of
outstanding shares of NSU Common Stock immediately prior to the Effective Date
and the numerator is the number of shares of Michael Common Stock owned by NSU
at such date less the number of shares of Michael Common Stock owned by NSU
which are retired in consideration for the Net Indebtedness retained by New
Michael. For purposes of the Reorganization Agreement, Net Indebtedness is
defined to be the amount of outstanding NSU subordinated debentures and
subordinated fixed-term or extendible time certificates and the Dissenting
Shares Holdback, less any cash retained by NSU at the time of the Merger. Under
the terms of the Reorganization Agreement, the Net Indebtedness retained by NSU
may not be less than $25,000,000 nor more than $38,000,000. The number of shares
of Michael Common Stock to be retired (the "Retired Michael Shares") in
consideration for the Net Indebtedness will be determined by dividing the amount
of Net Indebtedness by the average market price of the Michael Common Stock for
the twenty trading days ending on the third trading day prior to the Effective
Date of the Merger (the "Average Price of Michael Common Stock") after applying
a certain percentage discount to the Average Price of Michael Common Stock (the
"Discount Factor"). The Discount Factor will be based upon the amount of Net
Indebtedness, ranging from .92 at $25,000,000 to .90 beginning at $33,750,000,
resulting in an effective discount of 8% to 10%, respectively. See "THE
REORGANIZATION AGREEMENT -- Effects of the Reorganization on the Stockholders of
Michael and the Shareholders of NSU."
THE FOLLOWING EXAMPLE IS PRESENTED FOR INFORMATIONAL PURPOSES TO ILLUSTRATE
THE PROCEDURE FOR DETERMINING THE REVERSE STOCK SPLIT RATIO UTILIZING ACTUAL OR
PRO FORMA INFORMATION AS OF DECEMBER 31, 1995. THE INFORMATION PRESENTED BELOW
IS NOT INTENDED AS AN ESTIMATE OR PROJECTION OF ANY OF THE DATA THAT WILL BE
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<PAGE> 35
USED TO DETERMINE THE ACTUAL REVERSE STOCK SPLIT, NET INDEBTEDNESS OR ANY OTHER
AMOUNTS THAT WILL BE USED IN DETERMINING THE CONSIDERATION RECEIVED BY SUCH
SHAREHOLDERS OR STOCKHOLDERS IN THE REORGANIZATION. THE ACTUAL REVERSE STOCK
SPLIT, NET INDEBTEDNESS, DISCOUNT FACTOR AND OTHER ASSUMED AMOUNTS MAY BE HIGHER
OR LOWER THAN THE AMOUNTS PRESENTED BELOW. THE PRO FORMA ASSUMPTIONS USED BELOW
ARE DERIVED FROM THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
AND THE NOTES THERETO:
Pro Forma Assumptions:
The Average Price of Michael Common Stock: $11.55 per share (the average
of the closing prices of a share of Michael Common Stock for each of the
20 trading days ending on the third trading day prior to December 31,
1995)
Net Indebtedness: $27,061,000
Discount Factor: .915 (a discount of 8.5%)
Aggregate number of outstanding shares of NSU Common Stock: 9,448,000
Aggregate number of outstanding shares of Michael Common Stock held by
NSU: 7,354,950
Pro Forma Calculation of the Retired Michael Shares:
a. Aggregate number of Retired
Michael Shares = Net Indebtedness
--------------------------------
Average Price of Michael Common
Stock X Discount Factor
b. Aggregate number of Retired
Michael Shares = $27,061,000
--------------
$11.55 X .915
c. Aggregate number of Retired
Michael Shares = 2,560,594
Pro Forma Calculation of the Reverse Stock Split Ratio:
a. Ratio = (Aggregate number of outstanding shares of Michael
Common Stock held by NSU less Aggregate number of
Retired Michael Shares)
-----------------------------------------------------
Aggregate number of outstanding shares of NSU
Common Stock
b. Ratio = (7,354,950 - 2,560,594)
------------------------
9,448,000
c. Ratio = .51
Under the hypothetical example provided above, in the Reverse Stock Split
each share of NSU Common Stock issued and outstanding immediately prior to the
Effective Time would be combined into .51 shares of New Michael Common Stock.
All shares of Michael Common Stock held by NSU will not be converted into
shares of New Michael Common Stock in the Merger and will automatically be
canceled and retired. Each certificate previously representing shares of NSU
Common Stock or Michael Common Stock not held by NSU will thereafter represent
the right to receive a certificate representing shares of New Michael Common
Stock.
For a description of the procedures for exchanging NSU Common Stock or
Michael Common Stock for New Michael Common Stock and, in the case of NSU Common
Stock, for payment of cash in lieu of the issuance of fractional shares, see "--
Procedure for Exchange of Certificates."
EFFECTIVE TIME
If the Michael Proposal is approved and adopted by the requisite vote of
the stockholders of Michael, the NSU Proposals are approved and adopted by the
requisite vote of the shareholders of NSU and the other conditions to the
Reorganization are satisfied (or waived to the extent permitted), the Merger
will be
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consummated and effected at the time a Certificate of Merger is filed with the
Secretary of State of the State of Delaware.
The Reorganization Agreement provides that NSU and Michael will cause the
Effective Date to occur as promptly as practicable, but in no event later than
ten business days after the approval and adoption of the Michael Proposal by the
requisite vote of the stockholders of Michael, the approval and adoption of the
NSU Proposals by the requisite vote of the shareholders of NSU and satisfaction
(or waiver, to the extent permitted) of the other conditions contained in the
Reorganization Agreement. The Reorganization Agreement may be terminated by
either NSU or Michael in certain circumstances, notwithstanding the prior
approval and adoption of the Reorganization Agreement by their respective
shareholders and stockholders. See "THE REORGANIZATION AGREEMENT --
Termination."
BACKGROUND OF THE REORGANIZATION
In March 1987, NSU formed Michael to consolidate and focus development of
NSU's food businesses, and shortly thereafter Michael completed an initial
public offering of approximately 36% of its outstanding common stock. Since that
time, NSU's ownership of Michael has been reduced from approximately 64% to
approximately 38% of the outstanding Michael Common Stock through sales by NSU
of Michael Common Stock and additional issuances of Michael Common Stock.
For many years, both before and after the initial public offering of
Michael's Common Stock, NSU raised funds to finance acquisitions and support its
operations by offering and selling subordinated debentures and subordinated
fixed-term and extendible time certificates to the public. Debt service for this
indebtedness was provided through the reinvestment of maturing obligations by
investors, sales of assets and cash flow generated from NSU's operating
subsidiaries. Since the initial public offering of Michael in 1987, however, NSU
has not had the use of cash flow generated by Michael's operations other than
quarterly Michael dividends. Also, in June 1991, CorVel, formerly a wholly owned
subsidiary of NSU, completed an initial public offering of its common stock.
After the CorVel initial public offering, NSU ceased to have the use of cash
flow generated by CorVel. CorVel has not paid dividends on its common stock in
the past.
As a result of these transactions, NSU has experienced cash flow deficits
from operations, which has resulted in greater reliance by NSU on the sale of
subordinated fixed-term and extendible time certificates to finance continuing
operations and service its indebtedness. In response to this situation, NSU's
senior management has, for many years, considered various alternative strategies
and transactions to substantially reduce the amount of NSU's indebtedness and to
permit its shareholders to realize the substantial value of NSU's interest in
Michael. One obvious strategic alternative has always been to participate in a
tax-advantaged transaction involving Michael.
From time to time since 1990, NSU and Michael senior management have had
discussions concerning various possible tax-advantaged transactions that would
result in all or a portion of NSU's substantial ownership interest in Michael
being held directly by NSU's shareholders. Also, certain of the transactions
discussed involved the assumption of some or all of NSU's outstanding
indebtedness in consideration of the retirement of some of the Michael Common
Stock held by NSU. Although a number of alternative transactions and transaction
structures were discussed, agreement was never reached on any particular
transaction, transaction structure or related financial terms and none of these
discussions progressed beyond the preliminary discussion stage.
In the summer of 1994, Jeffrey J. Michael, President and Chief Executive
Officer of NSU, contacted Gregg A. Ostrander, President and Chief Executive
Officer of Michael, to request that Michael and NSU hold discussions again in an
effort to structure a mutually acceptable transaction that would provide for the
assumption by Michael of some or all of NSU's outstanding indebtedness and
permit NSU's shareholders to directly own NSU's interest in Michael. A number of
meetings between senior management of both companies followed in the fall of
1994, and continued off and on through the spring of 1995. During this time the
fundamental elements required by each of NSU and Michael in any such transaction
between them were discussed. These elements included the following: (i) any such
transaction could not result in federal income tax to the parties or their
respective shareholders or stockholders; (ii) the amount of NSU indebtedness
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<PAGE> 37
assumed by Michael in any such transaction had to be within parameters to be
agreed upon; (iii) the Michael Common Stock to be retained in consideration for
the debt assumed in any such transaction had to be valued at a discount to the
market; and (iv) Michael had to be protected from the liabilities of NSU
relating to the operations of NSU (other than its investment in Michael Common
Stock). Michael and its financial advisors also concluded that the transfer of
all other assets and liabilities of NSU to a separate company to be spun-off to
the NSU shareholders or some other disposition of such assets and satisfaction
of such liabilities was necessary in order to avoid higher costs of capital that
would otherwise occur if such assets and liabilities were retained after the
Reorganization and to avoid the adverse impact on the value of Michael Common
Stock if New Michael were engaged in businesses unrelated to its core food
processing and distribution businesses. As a result of these discussions, senior
management of both companies, with the assistance of their respective tax and
legal advisors, developed a general transaction structure proposal that
satisfied the parties' fundamental requirements. No agreement was reached,
however, on the financial terms, or on certain of the other terms of this
proposal.
Once a potentially acceptable transaction structure proposal had been
developed, advisors of both companies were directed to obtain a preliminary
indication from the IRS as to the tax treatment of the proposal. Discussions
with the IRS occurred during the spring and summer of 1995, which led senior
management of both companies to conclude that there were reasonable prospects
for receipt of a favorable ruling concerning the tax-free nature of the
transaction structure proposal.
Beginning in September 1995, NSU and Michael began meetings involving
senior management and their respective legal, tax and financial advisors to
discuss the financial and other terms relating to the transaction structure
proposal that had been developed and discussed with the IRS. These discussions
continued in October, during which tentative agreement was reached between the
senior managements of NSU and Michael as to certain of the principal terms of
the transaction proposal. On October 27, 1995, immediately following Michael's
regular quarterly board meeting, Michael's management informed the Michael Board
of the status of negotiations with NSU and the principal terms of the
transaction proposal that was currently under consideration by Michael senior
management. Messrs. Jeffrey J. Michael, James H. Michael and Miles E. Efron,
each a member of the board of directors of both NSU and Michael, at the request
of Michael, did not participate in this discussion. At the NSU Board meeting
held on November 7, 1995, NSU's management and its financial advisor discussed
with the NSU Board the principal terms of the transaction proposal that was
currently under consideration by NSU senior management. The NSU Board, after
such discussion, directed and authorized certain officers of NSU to negotiate
the terms of a definitive agreement with respect to the transaction proposed,
subject to final board review and approval.
Over the next several weeks, the terms of the definitive agreement were
negotiated and a definitive agreement was presented to each of the NSU and
Michael Boards at separate meetings held on December 21, 1995. Messrs. Michael,
Michael and Efron recused themselves from participation in the meeting of the
Michael Board. The Boards of Directors of NSU and Michael approved the
Reorganization Agreement at their respective meetings held on that date. The
Reorganization Agreement was executed by NSU and Michael later that same day.
RECOMMENDATION OF MICHAEL BOARD; MICHAEL'S REASONS FOR THE REORGANIZATION
THE MICHAEL BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF MICHAEL COMMON
STOCK VOTE FOR THE MICHAEL PROPOSAL.
Michael's Reasons for the Transactions. On December 21, 1995, the Michael
Board met to consider the Merger and the transactions contemplated thereby.
Michael's senior management, Michael's legal and accounting advisors and Piper
Jaffray, its investment banker, made presentations to the Michael Board and
discussed with the Michael Board their views and analyses of various aspects of
the proposed transactions. The Michael Board reviewed and considered, among
other things, the background of the proposed transaction, Michael's strategic
alternatives, financial and valuation analyses of the transaction, the terms of
the Reorganization and the other matters described herein. Piper Jaffray gave an
opinion that, based upon the matters presented to the Michael Board and as set
forth in its opinion, as of such date, the consideration paid
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by Michael in the form of Net Indebtedness retained by New Michael for the
Retired Michael Shares and the exchange of Michael Common Stock for New Michael
Common Stock is fair to Michael from a financial point of view. See "-- Fairness
Opinions."
In view of the variety of factors considered in connection with its
evaluation of the Reorganization, the Michael Board did not quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determination. In reaching its determination to recommend
approval of the transactions, the Michael Board consulted with Michael
management, as well as legal counsel, accounting and tax advisors, and its
investment banker. The Michael Board concluded that the Reorganization will
allow Michael to acquire a large block of its stock at a discount from the
market price of such stock which Michael believes will be accretive to earnings
per share in 1996 and 1997. The effective redemption of Michael shares owned by
NSU should also remove the market's perceived adverse effect of NSU holding such
a large position in Michael and should increase the liquidity of Michael Common
Stock. The Michael Board concluded that the amount of indebtedness to be assumed
in the Reorganization would not have a material adverse affect on Michael.
Finally, the Michael Board authorized the Reorganization, in part, based on
NSU's willingness to complete the Distribution.
The Michael Board believes that the terms of the Reorganization and the
transactions contemplated thereby are in the best interests of Michael and its
stockholders. Accordingly, the Michael Board has approved the Reorganization
Agreement and the Merger and recommends approval thereof by the stockholders of
Michael.
RECOMMENDATION OF NSU BOARD; NSU'S REASONS FOR THE REORGANIZATION
THE NSU BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF NSU COMMON STOCK VOTE
FOR THE NSU PROPOSALS.
NSU's Reasons for the Reorganization. On December 21, 1995, the NSU Board
met to consider the Reorganization, the terms of the Reorganization Agreement
and Distribution Agreement and the transactions contemplated thereby. NSU's
senior management and representatives of NSU's legal advisor and GAHS, its
independent financial advisor, made presentations to the NSU Board and discussed
with the NSU Board their views and analyses of various aspects of the proposed
transaction. The NSU Board reviewed and considered, among other things, the
background of the proposed transaction, NSU's strategic alternatives, financial
and valuation analyses of the transaction, the terms of the Reorganization
Agreement and the Distribution Agreement, the Merger, the Distribution, the New
Articles and the other matters described herein. GAHS provided an opinion that,
based upon the matters presented to the NSU Board and as set forth in its
opinion, as of such date, that the Reorganization was fair to the shareholders
of NSU from a financial point of view. See "-- Fairness Opinions."
In view of the variety of factors considered in connection with its
evaluation of the Reorganization, the NSU Board did not quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determination. In reaching its determination, the NSU Board
consulted with NSU management, as well as its legal counsel and financial
advisor, and considered a number of factors. The NSU Board considered that the
Reorganization will relieve NSU's operating businesses of significant debt
service obligations with respect to the Net Indebtedness of NSU to be assumed by
New Michael. The NSU Board also considered the advantages of avoiding income
taxation at the corporate level on NSU's holdings of Michael Common Stock while
providing its shareholders with a direct financial interest in Michael. Further,
the NSU Board considered that the Distribution would allow NSU's shareholders to
continue to hold an interest in NSU's other assets and that the Distribution was
required by Michael in order to avoid higher costs of capital to Michael.
The NSU Board believes that the consummation of the Reorganization,
including the execution of the Reorganization Agreement, the Merger, the Reverse
Stock Split, the Distribution and the New Articles are in the best interests of
NSU and its shareholders. Based on these considerations, the NSU Board has
unanimously approved the Merger, the Reverse Stock Split, the Distribution and
the New Articles and
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authorized the execution of the Reorganization Agreement and Distribution
Agreement and recommended approval thereof by the shareholders of NSU.
FAIRNESS OPINIONS
Opinion of Michael's Financial Advisor. Michael retained Piper Jaffray as
its investment banker in connection with the Reorganization. Piper Jaffray is an
investment banking firm engaged, among other things, in the valuation of
businesses and their securities in connection with mergers and acquisitions,
underwriting and secondary distributions of securities, private placements and
valuations for estate, corporate and other purposes. Piper Jaffray was selected
by Michael because of its reputation as a recognized investment banking firm and
its familiarity with Michael and its respective component businesses. Piper
Jaffray makes a market in Michael's Common Stock, provides research coverage for
Michael, and acted as co-manager of public offerings of Michael Common Stock in
1987, 1988 and 1991 and as placement agent for an offering of senior notes in
1989.
Piper Jaffray delivered written opinions to the Michael Board dated as of
December 21, 1995 and on or about the date of this Proxy Statement/Prospectus,
that, based upon and subject to the matters set forth in its written opinion as
of such dates, the effective price per share Michael is paying NSU, in the form
of the Net Indebtedness retained by New Michael, for the Retired Michael Shares
and the exchange of Michael Common Stock for New Michael Common Stock is fair,
from a financial point of view, to Michael. The full text of the written opinion
of Piper Jaffray, dated as of the date of this Proxy Statement/Prospectus, is
set forth as Appendix II to this Proxy Statement/Prospectus and describes the
assumptions made, matters considered and limits on the review undertaken. The
following summary of the opinion is qualified in its entirety by reference to
the full text of the opinion attached hereto as Appendix II. Michael
stockholders are urged to read the opinion in its entirety. The assumptions
made, matters considered and limits on the review undertaken in the opinion
dated the date of this Proxy Statement/Prospectus are substantially the same as
those contained in the opinion dated December 21, 1995.
Piper Jaffray's opinion addresses only the fairness of the Reorganization
from a financial point of view to Michael and does not constitute a
recommendation to any stockholder of Michael as to how such stockholder should
vote with respect to the approval of the Reorganization. In connection with its
opinion, Piper Jaffray was not requested to opine as to, and their opinion does
not address, the merits of the basic business decision to proceed with or effect
the Reorganization. Piper Jaffray does not admit that it is an expert within the
meaning of the term "expert" as used in the Securities Act and the rules and
regulations promulgated thereunder, or that its opinions constitute a report or
valuation within the meaning of Section 11 of the Securities Act and the rules
and regulations promulgated thereunder.
In connection with rendering its opinion, Piper Jaffray: (i) reviewed the
Reorganization Agreement; (ii) reviewed the annual reports, Forms 10-K and
audited financial statements for Michael for the three years ended December 31,
1994; (iii) reviewed the Forms 10-Q for Michael for the quarters ended March 31,
June 30 and September 30, 1995; (iv) reviewed the annual reports, Forms 10-K and
audited financial statements for NSU for the three years ended December 31,
1994; (v) reviewed the Forms 10-Q for NSU for the quarters ended March 31, June
30 and September 30, 1995; (vi) reviewed two year financial forecasts for
Michael furnished by Michael management; (vii) conducted discussions with
members of senior management of Michael; (viii) conducted discussions with
members of senior management of NSU; (ix) reviewed the historical prices and
trading activity for Michael Common Stock and NSU Common Stock; (x) reviewed the
financial terms, to the extent publicly available, of certain comparable
transactions it deemed relevant; (xi) considered the proforma effect of the
proposed Merger on Michael earnings per share for the two fiscal years ending
December 31, 1997; (xii) compared certain financial and securities data of
Michael with certain financial and securities data of companies deemed similar
to Michael or representative of the business sector in which Michael operates;
and (xiii) reviewed other financial data, performed other analyses and
considered other information as it deemed necessary and appropriate under the
circumstances.
In the course of its review, Piper Jaffray relied upon and assumed the
accuracy and completeness of the financial statements and other information
provided by Michael, NSU or otherwise made available to Piper
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Jaffray and did not attempt independently to verify such information. Piper
Jaffray further relied upon the assurances of Michael's management that the
information provided pertaining to Michael was prepared on a reasonable basis
and, with respect to financial planning data, reflected the best currently
available estimates. In that regard, Piper Jaffray assumed, with Michael's
consent, that any projections or forecasts reflected the best currently
available estimates and judgments of the Michael management. Furthermore, Piper
Jaffray assumed that neither Michael nor NSU was a party to any pending
transaction, including external financings, recapitalizations, acquisitions or
merger discussions, other than the Merger or otherwise not in the ordinary
course of business. Piper Jaffray also assumed, with Michael's consent, that the
Merger, the Reverse Stock Split and the Distribution will not result in the
recognition of income or loss for federal income tax purposes.
In arriving at its opinion, Piper Jaffray did not perform any appraisals or
valuations of specific assets of Michael or NSU and expressed no opinion
regarding the liquidation value of Michael or NSU. Its opinion is necessarily
based upon information available to it, existing facts and circumstances and
economic, market and other conditions as they exist and are subject to
evaluation on the date of the opinion. Events occurring after the date of the
opinion could materially affect the assumptions used in preparing its opinion.
Piper Jaffray expressed no opinion as to the prices at which shares of Michael
Common Stock may trade at any future time.
The following is a summary of the three primary analyses performed by Piper
Jaffray in connection with its opinion.
Dilution Analysis. A dilution analysis was done to determine whether the
transaction is dilutive to Michael's earnings per share. The Reorganization
Agreement contemplates that Michael will assume between $25 million and $38
million in Net Indebtedness from NSU in exchange for the retirement of a portion
of the Michael Common Stock held by NSU. The income statement effects from the
transaction are an increased level of interest expense due to the assumption of
debt and a decreased number of shares of Michael Common Stock outstanding due to
the retirement of a portion of the Michael Common Stock held by NSU. Michael's
pre-transaction earnings per share were compared to the post-transaction
earnings per share to see if and when the Reorganization was dilutive to
Michael's earnings. Piper Jaffray's analysis of those figures currently supports
the conclusion that the transaction will be accretive to New Michael earnings
per share in both fiscal 1996 and 1997.
Comparable Transactions. Piper Jaffray prepared a comparable transaction
analysis to compare the discount to market to be received by Michael for the
retirement of Michael Common Stock in the Reorganization. The comparable
transaction analysis involves a review of transactions deemed comparable to the
Reorganization. Piper Jaffray focused on the following criteria to obtain a
group of such comparables: (i) privately negotiated transactions in which a
public company acquired a minority block of stock from a shareholder, excluding
open market transactions; (ii) the market capitalization of the acquiring
company exceeded $100 million; (iii) the percentage of shares repurchased was
greater than or equal to 10% but less than 50%; and (iv) the transactions
occurred between January 1, 1992, and December 21, 1995. These criteria yielded
37 transactions.
Piper Jaffray then reviewed the premium or discount paid for the block of
stock at three different points: one day prior to the announcement date, one
week prior to the announcement date and four weeks prior to the announcement
date. Piper Jaffray concluded that the discount factor for the Michael Common
Stock to be retired in consideration for the retention of the Net Indebtedness
compared favorably to the mean and median discounts for the transactions it
reviewed.
Cost Analysis. Piper Jaffray prepared a cost analysis that involved a
review of the costs of the Reorganization to Michael in order to determine a
range of discounts deemed appropriate for the transaction to cover such costs.
The costs Piper Jaffray analyzed included: (i) fixed costs, including all
professional fees (accountants, lawyers and financial advisors) and the costs
associated with the Michael stockholder approval process; and (ii) variable
costs, including (a) interest expense on NSU Indebtedness retained by New
Michael, after taxes; (b) incremental interest expense expected to be incurred
on Michael's current line of credit; and (c) underwriting expense for
potentially reselling the repurchased stock in a public equity underwriting. The
aggregate of these costs is dependent on the amount of debt assumed by Michael
and the
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Michael Common Stock average per share price assumed in the redemption of
Michael Retired Shares and is currently estimated to be in the range of $2.5
million to $3.8 million.
The appropriate discount to apply to the Michael Common Stock price in
order to determine the amount of shares to be repurchased in consideration for
assuming the Net Indebtedness was calculated by dividing the gross amount of the
costs (fixed plus variable) by the sum of the gross amount of the costs plus the
amount of Net Indebtedness. Based on Piper Jaffray's current analysis, the range
of implied appropriate discounts compared favorably to the discount factor
range.
In addition to these primary analyses, Piper Jaffray also reviewed certain
stock market information on Michael and NSU as well as on comparable companies
to Michael. While Piper Jaffray considered these reviews to be relevant and
prudent, they did not play a major role in their determination of the fairness
of the consideration exchanged.
The foregoing is a summary of the financial analyses used by Piper Jaffray
in connection with rendering its opinion. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or the summary set forth
above, without considering the analyses as a whole, could create an incomplete
view of the processes underlying Piper Jaffray's opinion. In arriving at its
opinion, Piper Jaffray considered the results of all such analyses. The analyses
were prepared solely for the purposes of Piper Jaffray providing its opinion as
to the fairness of the repurchase and share exchange, from a financial point of
view, to Michael and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. No company used
in the comparable company analysis summarized above is identical to Michael and
no transaction used in the comparable transaction analysis summarized above is
identical to the transactions described herein. Any analysis of the fairness of
the Merger, from a financial point of view, to Michael involves complex
considerations and judgments concerning differences in the potential financial
and operating characteristics of the comparable companies and transactions and
other factors in relation to the trading and acquisition values of the
comparable companies. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than those suggested by such analyses. As described above,
Piper Jaffray's opinion was one of many factors taken into consideration by the
Michael Board in making its determination to approve the Reorganization
Agreement.
Michael has agreed to pay Piper Jaffray a fee of $220,000 for rendering its
financial advisory services, including its opinion. This fee was not conditioned
upon the ability of Piper Jaffray to render its opinion. Michael also agreed to
reimburse Piper Jaffray for its reasonable out-of-pocket expenses, including the
fees and disbursements of its counsel, and to indemnify Piper Jaffray against
certain liabilities, including liabilities under the federal securities laws.
Opinion of NSU's Financial Advisor. NSU retained GAHS as its financial
advisor in connection with the Reorganization. As a customary part of its
investment banking business, GAHS is engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, private placements, and
valuations for estate, corporate, and other purposes. GAHS does not make a
market in the NSU Common Stock or Michael Common Stock.
GAHS delivered its written opinion to the NSU Board, dated as of December
21, 1995, and as of the date of this Proxy Statement/Prospectus that, based upon
and subject to the matters set forth in its written opinions, as of each such
date, the Reorganization is fair to NSU's shareholders from a financial point of
view. The full text of the written opinion of GAHS, dated as of the date of this
Proxy Statement/Prospectus, is set forth as Appendix III to this Proxy
Statement/Prospectus and describes the assumptions made, matters considered, and
limits on the review undertaken. NSU shareholders are urged to read the opinion
in its entirety. The following summary of the opinion is qualified in its
entirety by reference to the full text of the opinion attached as Appendix III
to this Proxy Statement/Prospectus. GAHS does not admit that it is an expert
within the meaning of the term "expert" as used in the Securities Act and the
rules and regulations promulgated thereunder, or that its opinions constitute a
report or valuation within the meaning of Section 11 of the Securities Act and
the rules and regulations promulgated thereunder.
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GAHS's opinion addresses only the fairness of the Reorganization, from a
financial point of view, to NSU's shareholders, and does not constitute a
recommendation to any NSU shareholder as to how such shareholder should vote
with respect to any of the NSU Proposals. In connection with its opinion, GAHS
was not requested to opine as to, and its opinion does not address the merits of
the basic business decision to proceed with or effect the Reorganization.
In arriving at its opinion, GAHS undertook such reviews, analyses, and
inquiries as it deemed necessary and appropriate under the circumstances. Among
other things, GAHS reviewed the Reorganization Agreement, the Distribution
Agreement, and financial and other information relating to NSU and Michael. GAHS
reviewed the reported price and trading activity of NSU and Michael Common
Stock. GAHS compared certain financial and stock market information with respect
to NSU and Michael with similar information for certain other companies,
securities of which are publicly traded. GAHS made inquiries of NSU's management
as to NSU's financial condition, operating results, business outlook plans and
opportunities. GAHS also conducted discussions with members of senior management
of Michael, and reviewed all publicly available information relative to NSU and
Michael.
GAHS relied upon and assumed the accuracy, completeness, and fairness of
the financial statements and other information of NSU and Michael, and did not
attempt independently to verify such information. GAHS further relied upon
assurances by NSU that the information provided to GAHS had a reasonable basis,
and with respect to projections and other business outlook information,
reflected the best currently available estimates, and that NSU was not aware of
any information or fact that would make such information provided to GAHS
incomplete or misleading.
GAHS's opinion is not based on any specific appraisal of the liquidation
value of NSU or Michael or any of their respective assets, or of ENStar or any
of its assets. GAHS did not actively solicit indications of interest or value
from any third parties for NSU or any of its assets; nor did GAHS solicit
indications of interest or value from any third parties for Michael. GAHS is not
expressing any opinion as to the price at which shares of Common Stock of ENStar
or New Michael will trade subsequent to the Effective Date, and GAHS expressly
disclaims any opinion as to prices at which shares of NSU or Michael Common
Stock have traded prior to the date of the Reorganization. GAHS's opinion is
based on the information made available to it and the facts and circumstances as
they exist as of the date of such opinion, and is subject to evaluation on the
date thereof. Events occurring after the date of such opinion could materially
affect the assumptions used in preparing such opinion. GAHS was not requested to
opine, and is not opining, in any way concerning other transactions or
agreements entered into in conjunction with the Reorganization.
GAHS assumed that neither NSU nor Michael was a party to any pending
transaction, including external financings, recapitalizations, acquisitions, or
merger discussions, other than the Reorganization, or in the ordinary course of
business. GAHS also assumed, based on NSU's instructions, that the
Reorganization including the Merger and the Distribution, will not result in
recognition of income or loss for federal income tax purposes.
The following is a summary of the primary analysis performed by GAHS in
connection with its opinion.
Economic Comparison of NSU's Alternatives for its Michael Common
Stock. Because ENStar will be configured so as to represent primarily the same
assets and liabilities currently held by NSU, with the exception of the Michael
Common Stock and the Net Indebtedness of NSU, ENStar will have the same
intrinsic value as NSU prior to the Reorganization, modified by the economic
impact of these two exceptions. Therefore, the net economic impact of the
Reorganization on NSU shareholders is measured by the financial terms of the
exchange by NSU of the Retired Michael Shares for Michael's assumption of NSU's
Net Indebtedness. GAHS's first analysis focused on a comparison of the economic
impact of this defacto sale by NSU to Michael of the Retired Michael Shares, to
other alternatives open to NSU for disposition of the Michael Shares held by
NSU.
- Public Sale by NSU. GAHS analyzed and evaluated the alternatives
available to NSU for registration of its Michael Common Stock under
applicable federal and state securities laws, and selling such shares to
the public through a secondary offering or in an unregistered, piecemeal
fashion as
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permitted under applicable laws. GAHS concluded that such alternative would
result in lesser after-tax proceeds and inferior intrinsic value to NSU's
shareholders as compared to the Reorganization, due to the costs and
expenses of such an option, including without limitation, the income taxes
payable by NSU in conjunction with such a sale or sales, as well as other
market issues relating to the impact of such transaction on the trading
value of the Michael Common Stock.
- Private Sale by NSU of its Michael Shares. After analysis and
evaluation, GAHS concluded that a private sale by NSU of its Michael
shares, without registration under applicable federal and state securities
laws, was not practical or appropriate. Moreover, GAHS concluded that, in
light of the tax impact of such an alternative, the intrinsic value to
NSU's shareholders of such a private sale would be inferior to the
Reorganization.
- The Sale of Michael in its Entirety. After analysis and evaluation
and discussions with the management of Michael and the management of NSU
and the NSU Board, GAHS concluded that the possible sale of Michael in its
entirety was unlikely and impractical. Such a sale, however, might result
in a control premium and, if properly structured as a tax-free
reorganization with respect to NSU, could result in greater value to the
NSU shareholders than that which they may receive in the Reorganization.
Management of Michael confirmed to GAHS, however, that it had no present
intention to pursue such a transaction based on its belief that it would
not be in the best interests of Michael's shareholders. Moreover, after due
consideration and discussions with management of NSU, GAHS concluded that
NSU was not in a position to unilaterally take action that would bring
about a sale of Michael in its entirety without the support or initiation
of Michael's management. A relevant consideration in GAHS's analysis was
the requirement that any such sale of Michael in its entirety would be
required to be structured as a tax-free reorganization with respect to NSU
also, in order to avoid recognition of substantial taxable income by NSU so
as to achieve an intrinsic value to NSU shareholders equal to or greater
than the Reorganization.
Comparable Transactions. GAHS prepared a comparable transaction analysis to
compare the discount to market used in determining the number of Retired Michael
Shares in the Reorganization. The comparable transaction analysis involved a
review of transactions deemed comparable to the Merger. GAHS focused on the
following criteria to determine a group of comparables: (i) privately negotiated
transactions in which a public company acquired a minority block of stock from a
shareholder, excluding open market transactions; (ii) the market capitalizations
of the acquiring company exceeded $100 million; (iii) the percentage of shares
repurchased was greater than 10% but less than 50%; and (iv) the transactions
occurred between January 1, 1992 and December 21, 1995.
In addition, GAHS considered and evaluated the unique objectives and
requirements confronting buyer and seller in such comparable transactions,
including without limitation, the alternative opportunities for the seller to
dispose of the stock and the relevance of tax-free or tax-advantaged transaction
structures.
GAHS then reviewed the premium or discount paid for the block of stock at
various points in time prior to and at the effective date of such transactions.
While actual discounts ranged from nominal to 40% or greater, the most
comparable transactions involved discounts in the 5% to 15% range. Key factors
in determining the appropriate discount level in such transactions include the
strength of the public market for the shares, the seller's alternatives for
divesting such shares, the redeeming company's cost of capital and financial
capability, its expenses incurred in conjunction with the stock repurchase, the
impact of the stock repurchase on the company's balance sheet and future cost of
borrowing, as well as requirements for prospective secondary offerings by the
redeeming company, and other special circumstances, including without
limitation, tax advantages and/or costs to the selling shareholder and/or the
redeeming company. Of particular relevance in GAHS's opinion, was the redemption
by E.I. DuPont de Nemours and Company of a substantial number of its shares held
by The Seagram Company Ltd. in April, 1995. The transaction highlights the
market precedence for focusing on the after-tax attributes of a redemption to
the selling company's shareholders.
ENStar Strategic Considerations. GAHS considered that strategic
considerations with respect to the prospects of ENStar were not meaningfully
relevant to the issue of fairness of the Reorganization, due in large
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measure to the fact that ENStar represents the same assets and liabilities as
NSU prior to the effective date of the Reorganization, with the exception of the
elimination of the Retired Michael Shares and the Net Indebtedness.
Nevertheless, GAHS considered that, in general, the Reorganization would have a
favorable impact on ENStar's strategic prospects for numerous reasons, including
ENStar's increased focus and decreased leverage vis-a-vis NSU.
The foregoing is a summary of the analyses used by GAHS in connection with
rendering its opinion. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the summary set forth
above, without considering the analyses as a whole, could create an incomplete
view of the processes underlying GAHS's opinion. In arriving at its opinion,
GAHS considered the results of all such analyses. The analyses were prepared
solely for the purposes of GAHS providing its opinion as to the fairness of the
Reorganization to NSU shareholders, from a financial point of view, and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. No company used in the comparable company
analyses summarized above is identical to NSU and no transaction used in the
comparable transaction analysis summarized above is identical to the
Reorganization. Any analysis of the fairness of the Reorganization to NSU
shareholders, from a financial point of view, involves complex considerations
and judgments concerning differences in the potential financial and operating
characteristics of the comparable companies and transactions and other factors
in relation to the trading and acquisition values of the comparable companies.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
those suggested by such analyses. As described above, GAHS's opinion was one of
many factors taken into consideration by the NSU Board in making its
determination to approve the Reorganization.
GAHS has been paid $77,500 for its financial advisory services to date,
including $25,000 in connection with the delivery of its fairness opinion on
December 21, 1995. If the Reorganization is consummated, GAHS will receive an
additional $175,000 to $225,000, depending upon the amount of the Discount
Factor, for its financial advisory services and $75,000 for the issuance of its
fairness opinion. Reasonable out-of-pocket expenses of GAHS will also be
reimbursed by NSU, and NSU has agreed to indemnify GAHS against certain
liabilities.
PROCEDURE FOR EXCHANGE OF CERTIFICATES
General. As soon as practicable after the Effective Time, The First
National Bank of Boston, or another person mutually designated by Michael and
NSU, in its capacity as the Exchange Agent, will send a transmittal letter to
each Michael stockholder and NSU shareholder. The transmittal letter will
contain instructions with respect to the surrender of certificates representing
Michael Common Stock and NSU Common Stock in exchange for certificates
evidencing New Michael Common Stock.
Michael. Upon receipt of stock certificates representing shares of Michael
Common Stock ("Michael Certificates"), the Exchange Agent will deliver shares of
New Michael Common Stock to the surrendering stockholder in accordance with the
terms of the Reorganization Agreement.
If any issuance of shares of New Michael Common Stock in exchange for
shares of Michael Common Stock is to be made to a person other than the Michael
stockholder in whose name the Michael Certificate is registered at the Effective
Time, it will be a condition of such exchange that the certificate so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the Michael stockholder requesting such issuance either pay any transfer or
other tax required or establish to the satisfaction of New Michael that such tax
has been paid or is not payable.
After the Effective Time, there will be no further transfers of Michael
Common Stock on the stock transfer books of Michael. If a Michael Certificate
representing Michael Common Stock is presented for transfer, it will be canceled
and a certificate representing the same number of shares of New Michael Common
Stock will be issued in exchange therefor.
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After the Effective Time and until surrendered, shares of Michael Common
Stock will be deemed for all corporate purposes to evidence ownership of an
equal number of shares of New Michael Common Stock. New Michael will not be
obligated to deliver certificates evidencing shares of New Michael Common Stock
to former shareholders of Michael until the Michael Certificates relating to
such shares are surrendered. All declared dividends and distributions which
shall have become payable with respect to such New Michael Common Stock in
respect of a record date after the Effective Time will be paid to the holder of
record of the full shares of New Michael Common Stock regardless of whether such
holder has surrendered for exchange his or her certificates evidencing Michael
Common Stock.
NSU. Upon receipt of stock certificates evidencing shares of NSU Common
Stock ("NSU Certificates"), the Exchange Agent will deliver such number of full
shares of New Michael Common Stock and cash in lieu of fractional shares of New
Michael Common Stock, if any, as such shareholder is entitled to receive after
the Reverse Stock Split, together with any dividends or other distributions of
New Michael to which such shareholder is entitled. No fractional shares of New
Michael Common Stock will be issued to NSU shareholders in connection with the
Reverse Stock Split. In lieu of issuing fractional shares, NSU shareholders will
receive cash (without interest) determined by multiplying (a) the Average Price
of Michael Common Stock times (b) the fractional share interest which such
shareholders would otherwise be entitled to receive.
If any issuance of shares of New Michael Common Stock in exchange for
shares of NSU Common Stock is to be made to a person other than the NSU
shareholder in whose name the certificate is registered at the Effective Time,
it will be a condition of such exchange that the certificate so surrendered be
properly endorsed or otherwise in proper form for transfer and that the NSU
shareholder requesting such issuance either pay any transfer or other tax
required or establish to the satisfaction of New Michael that such tax has been
paid or is not payable.
After the Effective Time, there will be no further transfers of pre-Reverse
Stock Split NSU Common Stock on the stock transfer books of New Michael. If a
certificate representing pre-Reverse Stock Split NSU Common Stock is presented
for transfer, it will be canceled and a certificate representing the appropriate
number of full shares of New Michael Common Stock and cash in lieu of fractional
shares and any dividends and distributions will be issued in exchange therefor.
After the Effective Time and until surrendered, shares of pre-Reverse Stock
Split NSU Common Stock will be deemed for all corporate purposes, other than the
payment of dividends and distributions, to evidence ownership of the number of
full shares of New Michael Common Stock into which such NSU Common Stock was
combined in the Reverse Stock Split. No dividends or other distributions, if
any, payable to holders of NSU Common Stock will be paid to the holders of any
NSU Certificates until such certificates are surrendered. Upon surrender of such
NSU Certificates, all such declared dividends and distributions which shall have
become payable with respect to such NSU Common Stock in respect of a record date
after the Effective Time will be paid to the holder of record of the full shares
of New Michael Common Stock represented by the certificate issued in exchange
therefor, without interest.
DISTRIBUTION OF ENSTAR COMMON STOCK
On or prior to the Effective Date of the Merger, NSU will deliver to its
transfer agent certificates representing all of the outstanding shares of ENStar
Common Stock. On the Effective Date, immediately after the Effective Time, NSU
will deliver to such transfer agent an instruction to distribute as promptly as
practicable following the Effective Date to each holder of record of NSU Common
Stock on the record date for the Distribution stock certificates evidencing one
share of ENStar Common Stock for every three shares of NSU Common Stock held of
record by such shareholder on such record date for the Distribution and cash in
lieu of any fractional shares of ENStar Common Stock. No certificate or scrip
representing fractional shares of ENStar Common Stock will be issued as part of
the Distribution, and in lieu of receiving fractional shares each holder of NSU
Common Stock who would otherwise be entitled to receive a fractional share of
ENStar Common Stock pursuant to the Distribution will receive cash for such
fractional share. NSU will instruct its transfer agent to determine the number
of whole shares and fractional shares of ENStar Common Stock
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<PAGE> 46
allocable to each holder of record of NSU Common Stock as of the record date for
Distribution, to aggregate all such fractional shares into whole shares and sell
the whole shares obtained thereby in the open market, if possible, at then
prevailing prices on behalf of the holders who otherwise would be entitled to
receive fractional share interests and to distribute to each such holder such
holder's ratable share of the total proceeds of such sale. ENStar will bear the
costs and commissions incurred in connection with such sale. If the transfer
agent is unable to sell such shares in the open market, ENStar will pay to such
holders, in lieu of any fractional share, an amount of cash determined by
multiplying (a) the average closing price per share of ENStar Common Stock on
the Nasdaq National Market during the five days following the Effective Date
times (b) the fractional share interest to which such holder would otherwise be
entitled.
LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Michael Certificates or NSU Certificates have been lost,
stolen or destroyed, the Exchange Agent will issue shares of New Michael Common
Stock, in exchange for such lost, stolen or destroyed certificates upon the
making of an affidavit of that fact by the owner of such certificates, provided
that New Michael may, in its discretion require the holder of such lost, stolen
or destroyed certificates to deliver a bond in a reasonable sum as indemnity
against any claim that may be made against New Michael or the Exchange Agent
with respect to the certificates alleged to have been lost, stolen or destroyed.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO MICHAEL
STOCKHOLDERS AND NSU SHAREHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO
THE METHOD OF EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF MICHAEL
AND NSU COMMON STOCK. MICHAEL STOCKHOLDERS AND NSU SHAREHOLDERS SHOULD NOT SEND
CERTIFICATES REPRESENTING THEIR SHARES TO THE EXCHANGE AGENT PRIOR TO RECEIPT OF
THE TRANSMITTAL LETTER.
ESCHEAT AND WITHHOLDING
NSU, Merger Co., New Michael and ENStar will not be liable to any holder of
NSU Common Stock or Michael Common Stock for any consideration due such holder
as a part of the Reorganization delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. New Michael or the
Exchange Agent will be entitled to deduct and withhold from such consideration
to any NSU shareholder such amounts as New Michael or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
any provision of federal, state, local or foreign tax law.
INTEREST OF CERTAIN PERSONS IN THE REORGANIZATION
In considering the respective recommendations of the Michael Board and the
NSU Board regarding the Reorganization Agreement and the transactions
contemplated thereby, stockholders of Michael and shareholders of NSU should be
aware that certain members of the management of Michael and NSU and the Michael
and the NSU Boards have certain interests in the Reorganization that may be
different from, or in addition to, the interests of stockholders of Michael and
shareholders of NSU generally.
Michael. All of the current directors of Michael, except James H. Michael
and Orville L. Freeman, will become directors of New Michael. In addition, the
executive officers of Michael will become executive officers of New Michael. See
"THE REORGANIZATION AGREEMENT -- New Michael Management Following the
Reorganization."
Pursuant to the Reorganization Agreement, New Michael will assume all
existing Michael stock option plans and the stock award portion of Michael's
Executive Incentive Plan. At the Effective Time, each outstanding right to
purchase shares of Michael Common Stock (a "Michael Option"), will be assumed by
New Michael in such manner that it is converted into an option to purchase the
same number of shares of New Michael Common Stock at the same exercise price.
Each Michael Option assumed by New Michael will have the same terms and
conditions as then are applicable to such Michael Option. As of April 15, 1996,
directors and executive officers of Michael held outstanding Michael Options to
purchase shares of Michael Common Stock at exercise prices ranging
from .
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NSU. At or prior to the Effective Time, all of the NSU stock options
outstanding under the NSU stock option plans will be canceled or exercised and
all NSU stock option plans will terminate.
Concurrently with the execution of the Reorganization Agreement, the
Michael Family Shareholders, who own an aggregate of 5,685,100 shares (or
approximately 60%) of the outstanding Common Stock of NSU, entered into the
Orderly Disposition Agreement. Under the Orderly Disposition Agreement, the
Michael Family Shareholders have agreed until the Effective Time (i) not to
sell, offer to sell, hypothecate or transfer any shares of NSU, unless sold
pursuant to Rule 144 of the Securities and Exchange Commission, pledged to
secure certain surety bonds or transferred among the Michael Family
Shareholders, (ii) to cause NSU to vote in favor of the Merger, the Reverse
Stock Split, the Distribution and the election of directors nominated by the New
Michael Board of Directors at any meeting of New Michael shareholders called for
such purpose, and (iii) prepare any necessary pre-merger notifications as
required under the HSR Act. The Michael Family Shareholders have also agreed to
refrain for a period of two years following the Effective Date from selling,
pledging or otherwise disposing of (i) shares of New Michael Common Stock
exceeding 5% of the outstanding shares of New Michael Common Stock, or (ii) any
of their shares to a purchaser who owns or would own more than 5% of the
outstanding New Michael Common Stock without giving an option to New Michael to
purchase such shares, except that they may pledge shares to secure certain
surety bonds. New Michael must exercise its option by completing the purchase of
the shares within twenty days of notification by the Michael Family Shareholders
of an intent to sell. The restrictions do not apply if a tender offer is made
for all of the outstanding New Michael Common Stock unless management of New
Michael announces opposition to the tender offer. In addition, the Michael
Family Shareholders are entitled during such two year period to certain
piggyback registration rights under the Act with respect to the New Michael
Common Stock if New Michael proposes to register common stock under the Act. The
Michael Family Shareholders also are entitled up to two times, during such two
year period, to request registration of a minimum of 500,000 shares for sale in
a public offering. However, New Michael would not be obligated to register
shares if registration required a special audit and New Michael may delay the
registration for 120 days under certain circumstances. Each selling Michael
Family Shareholder will pay New Michael a pro rata share of the registration
expenses, the aggregate fees and disbursements of underwriters, underwriting
discounts and commissions and transfer taxes, if any, and fees and disbursements
of counsel to the Michael Family Shareholders in connection with any
registration.
Finally, for a period of two years following the Effective Time, the
Michael Family Shareholders will be entitled to nominate two directors to the
New Michael Board if they collectively own ten percent or more of the
outstanding common stock of New Michael and one director to the Board if their
ownership is below ten percent. The initial designees of the Michael Family
Shareholders to the New Michael Board are Jeffrey J. Michael and Miles E. Efron,
both of whom currently are Michael directors. A copy of the Orderly Disposition
Agreement is attached hereto as Exhibit E to the Reorganization Agreement
included in Appendix I.
Peter E. Flynn, Executive Vice President, Chief Financial Officer and
Secretary of NSU, is a party to an employment agreement with NSU and Transition
which terminates December 31, 1997. Pursuant to that agreement, if Mr. Flynn's
employment is terminated due to a "change in control" of NSU, Mr. Flynn is
entitled to receive a single lump sum payment of $297,000. Also, if Mr. Flynn is
terminated by NSU, all of his then outstanding options immediately become
vested. The consummation of the Reorganization will result in such a change in
control under the terms of that agreement and Mr. Flynn's employment with NSU
will be terminated.
ACCOUNTING TREATMENT
The Merger will be accounted for as a business combination utilizing the
reverse acquisition method with Michael being the acquiror for accounting
purposes under generally accepted accounting principles. As such, the Merger
will be treated as an acquisition using the purchase method of accounting with
no change in the recorded amount of Michael's assets and liabilities. The assets
and liabilities of NSU that are acquired as a result of the Merger will be
recorded at their fair market values. The ENStar assets and liabilities will be
recorded at their historic amounts, as recorded in the books and records of NSU,
following the Distribution.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Reorganization is conditional upon receiving the
following rulings from the IRS:
The Merger. The Merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(B) of the Code and NSU and Michael will each
be a party to the reorganization within the meaning of Section 368(b) of
the Code. Accordingly: (i) no income, gain or loss will be recognized by
NSU or Michael as a result of the consummation of the Merger; (ii) no gain
or loss will be recognized by the holders of Michael Common Stock upon the
exchange of Michael Common Stock solely for New Michael Common Stock
pursuant to the Merger; (iii) the basis of the New Michael Common Stock
received by a stockholder of Michael pursuant to the Merger will be the
same as the basis of the Michael Common Stock surrendered in exchange
therefor; and (iv) the holding period of the New Michael Common Stock
received by a stockholder of Michael pursuant to the Merger will include
the period during which the Michael Common Stock surrendered therefor was
held, provided the Michael Common Stock is a capital asset in the hands of
the stockholder of Michael at the time of the Merger.
The Reverse Stock Split. The Reverse Stock Split will not be treated
as a stock distribution, or a transaction that has the effect of such a
distribution, to which Sections 301, 305(b) or 305(c) of the Code apply.
Accordingly, no taxable income will be recognized under such Sections by
any of the shareholders of NSU except for cash paid in lieu of fractional
shares, which cash payment shall be treated as received by the holder of
NSU Common Stock as a distribution in redemption of the fractional share
interest and such shareholder will recognize gain or loss, subject to the
provisions and limitations of Section 302 of the Code.
The Distribution. The Distribution will qualify as a tax-free
distribution under Sections 355 and 368(a)(1)(D) of the Code. Accordingly:
(i) NSU shareholders will not recognize income, gain or loss upon the
receipt of ENStar Common Stock; (ii) the tax basis of the shares of ENStar
Common Stock and New Michael Common Stock (including any fractional share
interests to which an NSU shareholder is entitled) held by an NSU
shareholder after the Distribution will be the same as the tax basis of the
shares of NSU Common Stock held by such shareholder immediately before the
Distribution, allocated in proportion to the fair market values of the
shares of ENStar Common Stock and New Michael Common Stock on the
Distribution Date; (iii) the holding period for the shares of ENStar Common
Stock received by the NSU shareholders will include the holding period of
the shares of NSU Common Stock with respect to which the Distribution was
made, provided that the shares of NSU Common Stock are held as a capital
asset on the Distribution Date; and (iv) where cash is received by a holder
of NSU Common Stock pursuant to the Distribution in lieu of fractional
share interests in NSU Common Stock, the cash payment will be treated as
received by the holder of NSU Common Stock as a distribution in redemption
of the fractional share interest and such shareholder will recognize gain
or loss, subject to the provisions and limitations of Section 302 of the
Code.
Treasury regulations governing Section 355 of the Code require that each
NSU shareholder who receives shares of ENStar Common Stock pursuant to the
Distribution attach a statement to the federal income tax return that will be
filed by the shareholder for the taxable year in which such shareholder received
the shares of ENStar Common Stock, which statement shows the applicability of
Section 355 of the Code to the Distribution. ENStar has represented that it will
provide each ENStar shareholder with information necessary to comply with this
requirement.
The rulings described above will be based upon certain representations,
including representations that (i) the holders of Michael Common Stock do not
have any plan or intention to sell, exchange or otherwise dispose of a number of
shares of New Michael Common Stock received pursuant to the Merger that would
reduce the ownership of New Michael Common Stock by all of the pre-Merger
holders of Michael Common Stock to a number of shares having a value, as of the
date of the Merger, of less than 50% of the value of all of the formerly
outstanding Michael Common Stock as of the same date and (ii) the holders of
ENStar Common Stock do not have any plan or intention to sell, exchange or
otherwise dispose of any of their ENStar or New Michael Common Stock following
and as part of the Distribution.
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Where cash is received by a holder of NSU Common Stock who exercises
dissenters' rights in connection with the Distribution, the cash payment will be
treated as received by the holder of NSU Common Stock as a distribution in
redemption of such shareholder's NSU Common Stock and such shareholder will
recognize gain or loss, subject to the provisions and limitations of Section 302
of the Code.
The foregoing is only a general description of certain anticipated federal
income tax consequences of the Merger, Reverse Stock Split, and Distribution
without regard to the particular facts and circumstances of the tax situation of
each stockholder of Michael or shareholder of NSU. It does not discuss all of
the consequences that may be relevant to Michael's stockholders or NSU's
shareholders entitled to special treatment under the Code (such as insurance
companies, dealers in securities, exempt organizations or foreign persons) or to
shareholders of NSU or stockholders of Michael who acquired their NSU Common
Stock or Michael Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation. The summary set forth above does not purport to be
a complete analysis of all potential tax effects of the transactions
contemplated by the Reorganization Agreement or the Merger itself or the
Distribution Agreement or the Distribution itself. No information is provided
herein with respect to the tax consequences, if any, of the Merger, Reverse
Stock Split or Distribution under state, local or foreign tax laws.
THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT
APPLY TO ALL HOLDERS OF NSU COMMON STOCK OR TO ALL HOLDERS OF MICHAEL COMMON
STOCK. SUCH HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE REORGANIZATION.
REGULATORY APPROVALS
Antitrust. Under the HSR Act and the rules and regulations thereunder, the
Reorganization may not be consummated until notifications have been given and
certain information has been furnished to the Antitrust Division of the United
States Department of Justice (the "Antitrust Division") and the FTC and
specified waiting period requirements have been satisfied. NSU and Michael each
filed with the Antitrust Division and the FTC a Notification and Report Form
(the "Notification and Report Form") with respect to the Merger on
. The initial waiting period for each of these filings is
scheduled to expire at 11:59 p.m. on , unless Michael's and NSU's
request for early termination is granted.
LISTING OF NEW MICHAEL COMMON STOCK; DIVIDENDS
New Michael expects to continue the Nasdaq National Market listing of NSU
Common Stock, but will use the symbol MIKL, rather than NSRU, and will
discontinue the listing of New Michael Common Stock on the Pacific Stock
Exchange. The payment of future dividends on New Michael Common Stock will be a
business decision to be made by the New Michael Board from time to time based
upon the results of operations and financial condition of New Michael and such
other factors as the New Michael Board considers relevant.
LISTING OF ENSTAR COMMON STOCK; DIVIDENDS
ENStar has applied to have the ENStar Common Stock approved for quotation
on the Nasdaq National Market under the symbol "ENSR." Since ENStar will not
have been publicly traded prior to the Distribution, there can be no assurance
that an active market will develop or be sustained after the Distribution,
although NSU has been advised that certain market makers in NSU Common Stock
expect to make a market in ENStar Common Stock. Management of ENStar currently
intends to retain any earnings for use in its operations and does not anticipate
paying any cash dividends in the foreseeable future.
EFFECT ON STOCK OPTION PLANS
The 1987 Incentive Stock Option Plan of Michael, the 1987 Non-Qualified
Stock Option Plan of Michael, the 1992 Stock Option Plan for Non-Employee
Directors of Michael, the 1994 Executive Incentive Plan, and the 1994 Executive
Performance Share Award Plan (the "Michael Stock Plans") and the Michael Options
will be assumed and adopted by New Michael in accordance with the terms of the
Michael Stock
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Plans and the Michael Options, and will have the rights provided in such plans,
which will remain unaffected by the Merger. New Michael will reserve a
sufficient number of authorized but unissued shares of New Michael Common Stock
for issuance under the Michael Stock Plans. As required pursuant to the terms of
the Reorganization Agreement, all outstanding NSU stock options will be
exercised or canceled by the Effective Date and all NSU stock option plans will
be terminated.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of New Michael Common Stock received by Michael stockholders and
NSU shareholders in the Merger, and all shares of ENStar Common Stock received
by NSU shareholders in the Distribution, will be freely transferable, except
that shares of New Michael Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act), of Michael or
NSU prior to the Merger and shares of ENStar Common Stock received by persons
who are deemed to be "affiliates" of NSU or ENStar may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of New Michael or ENStar) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Michael, NSU,
ENStar or New Michael generally include individuals or entities that control,
are controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal stockholders
of such party.
DISSENTERS' RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), holders of Michael
Common Stock are not entitled to dissenters' rights in connection with the
Merger because the Michael Common Stock is designated as a national market
system security on an interdealer quotation system by Nasdaq, Inc., and the
consideration which such holders will receive in the Merger consists solely of
New Michael Common Stock, which will also be designated as a national market
system security on an interdealer quotation system by Nasdaq, Inc.
Holders of NSU Common Stock who do not vote in favor of the Distribution
and who have properly complied with Sections 302A.471 and 302A.473 of the MBCA
will be entitled to dissenters' rights. Under the Reorganization Agreement, NSU
is not required to complete the Merger if holders of 1% or more of the
outstanding NSU Common Stock effectively elect dissenters' rights.
Shareholders of NSU that follow the procedures set forth in Section
302A.473 will be entitled to have their shares of NSU Common Stock appraised by
a Minnesota court and to receive payment of the "fair value" of such shares as
determined by that court. The shares of NSU Common Stock with respect to which
the holder has perfected a demand for dissenters' rights in accordance with
Section 302A.473 and has not effectively withdrawn or lost his rights to such
appraisal are referred to in this Proxy Statement/Prospectus as the "Dissenting
Shares."
Section 302A.473 entitles any holder of the NSU Common Stock who objects to
the Distribution, in lieu of receiving securities to which he or she would be
entitled to under the Reorganization Agreement and the Distribution Agreement,
to dissent therefrom and obtain payment for the "fair value" of his or her
shares of NSU Common Stock. Any shareholder of NSU contemplating the exercise of
these dissenters' rights should carefully review the provisions of Sections
302A.473 of the MBCA which has been provided as Appendix IV to this Proxy
Statement/Prospectus, particularly the specific procedural steps to perfect such
rights. SUCH RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTION
302A.473 ARE NOT FULLY AND PRECISELY SATISFIED.
Set forth below (to be read in conjunction with the full text of Section
302A.473 included with this Proxy Statement/Prospectus) is a brief description
of the procedures relating to the exercise of dissenters' rights. The following
description does not purport to be a complete statement of the provisions of
Section 302A.473 and is qualified in its entirety by reference thereto.
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Under Section 302A.473, Subd. 3, a shareholder of NSU who wishes to
exercise dissenters' rights (a "Dissenter") must file with NSU at Suite 610,
Park National Bank Building, 5353 Wayzata Blvd., Minneapolis, Minnesota 55416
before the vote on the NSU Proposals, a written notice of intent to demand the
"fair value" of NSU Common Stock owned by such shareholder. A shareholder of NSU
may not assert dissenters' rights as to less than all of the shares registered
in the name of such shareholder unless that shareholder dissents with respect to
all the shares that are beneficially owned by another person but registered in
the name of such shareholder and discloses the name and address of each
beneficial owner on whose behalf such shareholder dissents. In that event, the
rights of the Dissenter shall be determined as if the shares as to which such
shareholder dissented and the other shares were registered in the names of
different shareholders. A beneficial owner of shares of NSU Common Stock who is
not the record holder may assert dissenters' rights with respect to shares held
on behalf of the beneficial owner, and shall be treated as a Dissenter, if the
beneficial owner submits to NSU a written consent of the record holder of such
shares. IN ADDITION, THE SHAREHOLDER MUST NOT VOTE HIS OR HER SHARES IN FAVOR OF
THE DISTRIBUTION. A VOTE AGAINST SUCH PROPOSAL WILL NOT IN ITSELF CONSTITUTE
SUCH A WRITTEN NOTICE AND A FAILURE TO VOTE WILL NOT AFFECT THE VALIDITY OF A
TIMELY WRITTEN NOTICE. HOWEVER, THE SUBMISSION OF A BLANK PROXY WILL CONSTITUTE
A VOTE IN FAVOR OF SUCH PROPOSAL AND A WAIVER OF STATUTORY DISSENTERS' RIGHTS.
If the Distribution is approved by the shareholders of NSU, New Michael
will send to all Dissenters who file the necessary notice of intent to demand
the fair value of their shares and who did not vote their shares in favor of
such proposals, a notice containing certain information required by Section
302A.473, Subd. 4, including without limitation the address to which a Dissenter
must send a demand for payment and certificates representing shares in order to
obtain payment for such shares and the date by which they must be received. In
order to receive the fair value of the shares under Section 302A.473, a
Dissenter must demand payment and deposit certificates representing shares of
NSU Common Stock within 30 days after such notice from New Michael is given.
Under Minnesota law, notice by mail is given by New Michael when deposited in
the United States mail. A SHAREHOLDER WHO FAILS TO MAKE DEMAND FOR PAYMENT AND
TO DEPOSIT CERTIFICATES AS REQUIRED BY SECTION 302A.473, SUBD. 4, WILL LOSE THE
RIGHT TO RECEIVE THE FAIR VALUE OF HIS OR HER SHARES UNDER SUCH SECTION
NOTWITHSTANDING THE TIMELY FILING OF NOTICE OF INTENT TO DEMAND PAYMENT UNDER
SECTION 302A.473, SUBD. 3.
Except as provided below, if demand for payment and deposit of stock
certificates is duly made by a Dissenter with New Michael as required by the
notice, then after the Effective Time or the receipt of the demand, whichever is
later, New Michael will pay the Dissenter an amount that New Michael estimates
to be the fair value of the Dissenter's shares of NSU Common Stock, with
interest, if any. Under Sections 302A.471 and 302A.473, "fair value" means the
value of the shares of NSU Common Stock immediately before the Effective Time
and "interest" means interest commencing five days after the Effective Date
until the time of payment, calculated at the rate provided in Minnesota Statutes
Section 549.09. If the Dissenter believes the payment received from New Michael
is less than the fair value of the shares of NSU Common Stock, with interest, if
any, such Dissenter must give written notice to New Michael of his or her own
estimate of the fair value of the shares of NSU Common Stock, with interest, if
any, within 30 days after the date of New Michael's remittance, and must demand
payment of the difference between his or her estimate and New Michael's
remittance. If the Dissenter fails to give written notice of such estimate to
New Michael within the 30-day time period, such Dissenter will be entitled only
to the amount remitted by New Michael.
New Michael may withhold such remittance with respect to shares of NSU
Common Stock for which the Dissenter demanding payment (or persons on whose
behalf such Dissenter acts) was not the beneficial owner as of December 21,
1995, the first public announcement date of the Merger (the "Public Announcement
Date"). As to each Dissenter who has validly demanded payment, following the
Effective Time or the receipt of demand, whichever is later, New Michael will
mail its estimate of the fair market value of such Dissenter's shares of NSU
Common Stock and offer to pay this amount with interest, if any, to the
Dissenter upon receipt of such Dissenter's agreement to accept this amount in
full satisfaction. If such Dissenter believes
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<PAGE> 52
that New Michael's offer is less than the fair value of the shares of NSU Common
Stock, with interest, if any, such Dissenter must give written notice to New
Michael of his or her own estimate of the fair value of the shares of NSU Common
Stock with interest, if any, and demand payment of this amount. This demand must
be mailed to New Michael within 30 days after the mailing of New Michael's
offer. If the Dissenter fails to make this demand within such 30 day time
period, such Dissenter shall be entitled only to the amount offered by New
Michael.
If New Michael and the Dissenter cannot reach a settlement within 60 days
after New Michael receives the Dissenter's estimate of the fair value of his or
her shares of NSU Common Stock, then New Michael must file a petition in the
district court of Hennepin County, Minnesota, requesting that the court
determine the statutory fair value of the NSU Common Stock, with interest, if
any. All Dissenters whose demands are not settled within the applicable 60-day
settlement period will be made parties to this proceeding.
The court will then determine whether each Dissenter in question has fully
complied with the provisions of Section 302A.473, and for all Dissenters who
have fully complied and not forfeited statutory dissenters' rights, will
determine the fair value of the Dissenters' shares, taking into account any and
all factors the court finds relevant (including, without limitation, the
recommendation of any appraisers that may have been appointed by the court),
computed by any method that the court, in its discretion, sees fit to use,
whether or not used by New Michael or a Dissenter. The fair value of the
Dissenters' shares as determined by the court is binding on all shareholders and
may be less than, equal to or greater than the consideration to the holders if
the Reorganization is completed. However, under the statute, Dissenters are not
liable to New Michael for the amount, if any, by which payments remitted to the
Dissenters exceed the fair value of such shares determined by the court, with
interest. The costs and expenses of this court proceeding will be assessed
against New Michael, except that the court may assess part or all of such costs
and expenses against a Dissenter whose action in demanding payment is found to
be arbitrary, vexatious or not in good faith.
Under Section 302A.471, Subd. 4, a shareholder of NSU has no right at law
or equity to set aside the consummation of the Merger, the Reverse Stock Split,
the Distribution or the New Articles, unless the adoption thereof is fraudulent
with respect to such shareholder or NSU.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 302A.473 FOR PERFECTING
DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW OF THE
COMPLEXITY OF THE PROVISIONS OF SECTION 302A.473, SHAREHOLDERS OF NSU WHO ARE
CONSIDERING DISSENTING FROM THE DISTRIBUTION SHOULD CONSULT THEIR OWN LEGAL
ADVISORS.
NSU shareholders considering exercising dissenters' rights should bear in
mind that the fair value of their NSU Common Stock determined under Section
302A.473 could be more than, the same as or less than the value of the
consideration they will receive pursuant to the Reorganization Agreement if they
do not exercise dissenters' rights. In addition, in most cases, NSU shareholders
who receive cash for the fair value of their shares of NSU Common Stock upon the
exercise of dissenters' rights will realize taxable gain or loss for federal
income tax purposes. EACH SHAREHOLDER OF NSU IS URGED TO CONSULT WITH HIS OR HER
OWN PERSONAL TAX AND FINANCIAL ADVISORS CONCERNING FEDERAL INCOME TAX
CONSEQUENCES OF THE EXERCISE OF DISSENTERS' RIGHTS, AS WELL AS ANY APPLICABLE
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, BASED UPON SUCH SHAREHOLDER'S
OWN PARTICULAR FACTS AND CIRCUMSTANCES.
THE REORGANIZATION AGREEMENT
The following information describes certain aspects of the Reorganization
Agreement. This description does not purport to be complete and is qualified in
its entirety by reference to the Appendices hereto, including the Reorganization
Agreement and exhibits thereto, which are attached to this Proxy
Statement/Prospectus as Appendix I and are incorporated herein by reference. All
stockholders are urged to read Appendix I in its entirety. See also "THE
DISTRIBUTION AGREEMENT."
GENERAL
The Reorganization Agreement provides that: (i) Merger Co. will be merged
with and into Michael and Michael will become a wholly-owned subsidiary of NSU;
(ii) in the Merger, each stockholder of Michael
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(other than NSU) will receive, in exchange for each share of Michael Common
Stock held by such stockholder, one share of New Michael Common Stock; (iii) NSU
will change its name to Michael Foods, Inc. and will continue the business
previously conducted by Michael (Michael will change its name to Michael Foods
of Delaware, Inc.); (iv) prior to the consummation of the Merger, NSU will
transfer to ENStar all of its assets and liabilities other than certain
indebtedness and cash, as determined by NSU and other agreed upon assets and
liabilities; (v) the outstanding common stock of ENStar will, conditioned upon
the consummation of the Merger, be distributed pro rata to the shareholders of
NSU of record as of a record date just prior to the Effective Date; and (vi)
immediately prior to the Effective Time, NSU will effectuate the Reverse Stock
Split. The ratio of the Reverse Stock Split will be determined pursuant to the
terms of the Reorganization Agreement in the manner described below. See also
"THE REORGANIZATION -- Effects of the Reorganization."
EFFECTS OF THE REORGANIZATION ON THE STOCKHOLDERS OF MICHAEL AND THE
SHAREHOLDERS OF NSU
Michael Stockholders. Upon consummation of the Merger, each outstanding
share of Michael Common Stock, other than the Michael Common Stock owned by NSU,
will be converted into the right to receive one share of New Michael Common
Stock.
On and after the Effective Date, and until surrendered for exchange, each
outstanding stock certificate which immediately prior to the Effective Time
represented shares of Michael Common Stock will be deemed for all purposes to
evidence ownership of and to represent the same number of whole shares of New
Michael Common Stock and the record holder of such outstanding certificate will,
after the Effective Date, be entitled to vote the shares of New Michael Common
Stock into which such shares of Michael Common Stock will have been converted on
any matters on which the holders of record of the New Michael Common Stock, as
of any date subsequent to the Effective Date, are entitled to vote. In any
matters relating to such certificates of Michael Common Stock, New Michael may
rely conclusively upon the record of stockholders maintained by Michael or its
agent containing the names and addresses of the holders of record of Michael
Common Stock on the Effective Time.
NSU Shareholders. On the Effective Date, immediately prior to the Effective
Time, but in any event subject to the consummation of the Merger, NSU will
effectuate the Reverse Stock Split. In the Reverse Stock Split, each outstanding
share of NSU Common Stock will be converted into a fraction of one share of New
Michael Common Stock determined by multiplying each such share by a fraction
where the denominator is the number of outstanding shares of NSU Common Stock
immediately prior to the Effective Date and the numerator is the number of
shares of Michael Common Stock owned by NSU at such date less the Retired
Michael Shares. For purposes of the Reorganization Agreement, Net Indebtedness
is defined to be the amount of outstanding NSU subordinated debentures and fixed
or extendible time certificates and the Dissenting Shares Holdback less cash
retained by New Michael. The Dissenting Shares Holdback is an amount to be
mutually agreed upon by NSU and Michael based on the number of Dissenting
Shares. Under the terms of the Reorganization Agreement, the Net Indebtedness
retained by New Michael may not be less than $25,000,000 nor more than
$38,000,000. The number of shares of Michael Common Stock to be retired in
consideration for the Net Indebtedness will be determined by dividing the amount
of Net Indebtedness by the Average Price of Michael Common Stock after applying
a certain percentage discount to the Average Price of Michael Common Stock. The
Discount Factor will be based upon the amount of Net Indebtedness, ranging from
92% at $25,000,000 to 90% beginning at $33,750,000, resulting in an effective
discount of between 8% and 10%. The Discount Factor is determined pursuant to
Exhibit A to the Reorganization Agreement, a copy of which is included in
Appendix I to this Proxy Statement/Prospectus.
Pursuant to the Distribution Agreement between NSU and ENStar, prior to the
Merger, NSU will contribute and transfer to ENStar, all of NSU's assets, other
than: (i) such amount of cash as NSU may, in its sole discretion, determine to
retain at the Effective Date; (ii) 7,354,950 shares of Michael Common Stock
owned by NSU; (iii) the capital stock of Merger Co.; (iv) the rights of NSU
under the Reorganization Agreement, the Distribution Agreement and the Orderly
Disposition Agreement; and (v) all net operating loss carryforwards and other
tax attributes properly allocable to NSU following the Effective Date in
accordance with the relevant provisions of the Code (the "NSU Retained Assets").
ENStar also will assume
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all NSU liabilities other than: (i) liabilities arising from assertion of
dissenters' rights by NSU shareholders, (ii) liabilities under the
Reorganization Agreement, the Distribution Agreement or the Orderly Disposition
Agreement; and (iii) NSU's indebtedness (including principal and accrued
interest, the "NSU Indebtedness") represented by NSU's outstanding subordinated
debentures, subordinated extendible time certificates, subordinated fixed time
certificates and bank debt (collectively, the "NSU Assumed Liabilities"). In
addition, with certain limited exceptions, all intercompany receivables,
payables and loans in existence as of the Effective Time between NSU and any NSU
subsidiary, will be eliminated, without the transfer of cash, by dividend or
capital contributions, as appropriate.
On or prior to the Effective Date, NSU will deliver to its transfer agent
certificates representing all of the outstanding shares of ENStar Common Stock.
On the Effective Date, immediately after the Effective Time, NSU will deliver to
such transfer agent an instruction to distribute as promptly as practicable
following the Effective Date to each holder of record of NSU Common Stock on the
record date for the Distribution stock certificates evidencing one share of
ENStar Common Stock for every three shares of NSU Common Stock held of record by
such shareholder on such record date for the Distribution and cash in lieu of
any fractional shares of ENStar Common Stock. No certificate or scrip
representing fractional shares of ENStar Common Stock will be issued as part of
the Distribution, and in lieu of receiving fractional shares each holder of NSU
Common Stock who would otherwise be entitled to receive a fractional share of
ENStar Common Stock pursuant to the Distribution will receive cash for such
fractional share.
NEW MICHAEL MANAGEMENT FOLLOWING THE REORGANIZATION
The Board of Directors of New Michael (the "New Michael Board") after the
Merger will consist of nine members, seven of whom will be designated by the
Michael Board. These designees are expected to include Gregg A. Ostrander,
Richard A. Coonrod, Arvid C. Knudtson, Joseph D. Marshburn, Richard G. Olson,
and . There will initially be one vacancy on the New Michael Board.
An additional director is expected to be appointed by the New Michael Board
after the Effective Date. See "ELECTION OF MICHAEL DIRECTORS -- Nominees" for
further information on the named individuals. Two additional directors are
expected to be Jeffrey J. Michael and Miles E. Efron or other substitute
nominees of the Michael Family Shareholders, if either Mr. Michael or Mr. Efron
are unable to serve. Messrs. Michael and Efron currently are directors of
Michael. NSU and Michael currently contemplate that the members of the NSU Board
other than Mr. Efron and Mr. Michael will resign as of the Effective Time and
Mr. Efron and Mr. Michael will name the above-referenced individuals to the New
Michael Board. The New Michael Board will elect the officers of Michael as the
officers of New Michael. The officers of New Michael will be the officers of
Michael on the Effective Date.
CONDITIONS
The obligations of NSU and Michael to effect the transactions contemplated
by the Reorganization Agreement are subject to the fulfillment or waiver on or
prior to the Effective Date of the following conditions: (i) no injunction or
other order entered by a state or federal court of competent jurisdiction has
been issued and remain in effect which would prohibit or make illegal the
consummation of the transactions contemplated in the Reorganization Agreement;
(ii) no law, statute, rule or regulation, domestic or foreign, has been enacted
or promulgated which would prohibit or make illegal the consummation of the
transactions contemplated in the Reorganization Agreement; (iii) the NSU
Registration Statement and the ENStar Registration Statement have been declared
effective and is not subject to a stop order of the Commission or any state
securities commission, and ENStar Common Stock has been registered pursuant to
the Exchange Act; (iv) Michael and NSU have received a private letter ruling
from the IRS or a tax opinion addressed to both Michael and NSU by counsel or
independent certified accountants mutually acceptable to Michael and NSU as to
certain tax issues (see "THE REORGANIZATION -- Certain Federal Income Tax
Consequences"); (v) New Michael Common Stock to be issued to holders of Michael
Common Stock as a result of the Merger and to the holders of NSU Common Stock as
a result of the Reverse Stock Split has been approved for listing on the Nasdaq
National Market; (vi) all material consents and approvals necessary to
consummate the transactions contemplated in the Reorganization Agreement have
been received; (vii) there
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are no threatened, instituted or pending actions or proceedings before any court
or governmental authority or agency, domestic or foreign, challenging or seeking
to make illegal, or to delay or otherwise directly or indirectly to restrain or
prohibit, the consummation of the Reorganization or seeking to obtain material
damages; (viii) no action has been taken, or any statute, rule, regulation,
judgment, order or injunction proposed, enacted, entered, enforced, promulgated,
issued or deemed applicable to the transactions contemplated hereby by any
federal, state or other court, government or governmental authority or agency,
which could reasonably be expected to result, directly or indirectly, in any of
the consequences referred to in (vii) above; (ix) the conditions precedent to
the Distribution have been satisfied or waived; (x) the representations and
warranties of Michael and NSU in the Reorganization Agreement are true and
correct as of the Effective Date, except to the extent such representations and
warranties are made as of a specified date and, except where the failure to be
true and correct would not have, or would not reasonably be expected to have, a
material adverse effect on Michael or NSU; (xi) Michael and NSU have performed
each obligation and agreement and complied with each covenant to be performed
and complied with by them under the Reorganization Agreement at or prior to the
Effective Time; and (xii) the parties have exchanged confirming certification
and other evidence of satisfaction of all conditions.
The obligations of NSU to effect the transactions contemplated by the
Reorganization Agreement are subject to fulfillment or waiver prior to the
Effective Time of the following conditions: (i) the NSU Proposals have been
approved by the requisite NSU shareholder vote; and (ii) the number of shares of
NSU Common Stock with respect to which the holders thereof have effectively
dissented do not exceed one percent of the issued and outstanding shares of NSU
Common Stock as of the record date for the NSU Annual Meeting.
The obligations of Michael to effect the transactions contemplated by the
Reorganization Agreement are subject to fulfillment or waiver prior to the
Effective Time of the following conditions: (i) the Reorganization Agreement and
the Merger have been approved by the requisite Michael stockholder vote; (ii) no
event has occurred which, in the reasonable opinion of Michael and concurred in
by Grant Thornton LLP, would prevent the Merger, the Reverse Stock Split and the
Distribution from being accounted for as a business combination utilizing the
reverse acquisition method with Michael being the accounting acquiror for
accounting purposes under generally accepted accounting principles; (iii) NSU
has furnished Michael a certificate of the Chief Financial Officer of NSU
certifying the amounts of the NSU Assumed Liabilities, the NSU Indebtedness, the
Dissenting Shares Holdback and the cash held by NSU as a retained asset; (iv)
Michael has received the executed Orderly Disposition and Registration Rights
Agreement and Distribution Agreement; and (v) each of the officers of NSU have
tendered resignations, effective immediately after the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains various representations and
warranties of Michael, in respect of itself and its subsidiaries, and NSU in
respect of NSU and its subsidiaries, relating, among other things, to the
following matters (which representations and warranties are subject, in certain
cases, to specified exceptions): (i) corporate organization, standing,
qualification and similar corporate matters; (ii) the absence of violation of
provisions of charter documents; (iii) capitalization; (iv) the authorization,
execution, delivery and enforceability of the Reorganization Agreement; (v) the
absence of conflict of the Reorganization Agreement with charter documents, laws
or agreements and required consents for the execution and delivery of the
Reorganization Agreement; (vi) the absence of conflict with, default under or
violation of agreements and laws, and the holding of permits necessary for the
conduct of business, except as could not reasonably be expected to have a
material adverse effect on the business, assets or financial condition of
Michael or NSU, as the case may be; (vii) reports and other documents filed with
the Commission, the absence of material misstatements in the information
contained therein, and the fair presentation of the financial statements
contained therein in accordance with generally accepted accounting principles;
(viii) conduct of business in the ordinary course; (ix) the absence of
litigation to prevent the Reorganization; and (x) the absence of any material
untrue statements in the Registration Statement and this Proxy
Statement/Prospectus.
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CERTAIN COVENANTS
Conduct of Business by NSU. The Reorganization Agreement provides that
until the Effective Date, unless Michael otherwise agrees in writing or as
otherwise expressly contemplated or permitted by other provisions of the
Reorganization Agreement, NSU will not, directly or indirectly: (i) amend or
propose to amend its Articles or Bylaws except for the New Articles; (ii) issue,
sell or grant any of its equity securities other than NSU Common Stock,
securities convertible into or exchangeable for its equity securities other than
NSU Common Stock, warrants, options or other rights to acquire its equity
securities other than NSU Common Stock; (iii) reclassify any outstanding shares
of capital stock of NSU; (iv) acquire (by merger, exchange, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership, joint
venture or other business organization or division or assets thereof, except by
a NSU subsidiary and in a transaction in which NSU shall not have any
liabilities with respect thereto after the Effective Time; (v) sell, transfer,
pledge or otherwise encumber the Michael Common Stock owned by NSU other than as
collateral for indebtedness under a certain credit agreement; (vi) purchase or
otherwise acquire any additional shares of Michael Common Stock; (vii) default
in its obligations under any material debt, contract or commitment which default
results in the acceleration of obligations due thereunder; or (viii) enter into
or propose to enter into, or modify or propose to modify, any agreement,
arrangement, or understanding with respect to any of the foregoing matters.
Conduct of Business by Michael. The Reorganization Agreement provides that
until the Effective Date, unless NSU otherwise agrees in writing or as otherwise
expressly contemplated or permitted by other provisions of the Reorganization
Agreement, Michael will not, directly or indirectly: (i) amend its charter or
bylaws; (ii) split, combine or reclassify any outstanding shares of capital
stock of Michael; (iii) declare, set aside, make or pay any dividend or
distribution in cash, stock, property or otherwise with respect to the capital
stock of Michael, except for regular quarterly dividends which are not in excess
of $.05 per share per quarter on the Michael Common Stock, or (iv) default in
its obligations under any material debt, contract or commitment which default
results in the acceleration of obligations due thereunder, except for such
defaults arising out of the Reorganization Agreement for which consent, waivers
or modifications are required to be obtained.
Conditions and Undertakings. The Reorganization Agreement contains a number
of undertakings that must be completed by the parties prior to the Effective
Date and other agreements. The parties agreed to cooperate in the filing of a
ruling request with the IRS and an HSR notification. NSU also agreed to enter
into the Distribution Agreement. NSU is required to notify Michael of the
anticipated Net Indebtedness within a range of plus or minus $2,000,000 prior to
the effectiveness of the Registration Statement. In addition, the parties agreed
to retain certain information in confidence and to take appropriate action to
complete the Reorganization.
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Date
under the following conditions: (i) by mutual consent of Michael and NSU, by
majority vote of the entire board of directors of each; (ii) by either Michael
or NSU, if any of the conditions to its obligation to consummate the
transactions contemplated by the Reorganization Agreement have become impossible
to satisfy; (iii) by either Michael or NSU, if (a) the Merger is not duly
approved by the stockholders of Michael; or (b) any one of the NSU Proposals is
not approved by the shareholders of NSU; (iv) by either Michael or NSU if the
Effective Date is not on or before September 30, 1996 or such later date as
Michael and NSU may mutually agree (unless the failure to consummate the Merger
by such date shall be due to the action or failure to act of the party seeking
to terminate the Merger in breach of such party's obligations); (v) by NSU if
the Average Price of Michael Common Stock is less than $11.00 per share; (vi) by
Michael if the Average Price of Michael Common Stock is more than $17.00 per
share; or (vii) by Michael or NSU after notice and an opportunity to cure if a
representation or warranty given by the other is updated in such a way to
indicate that the party making such update will suffer a material adverse effect
or material liability.
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EXPENSES
Except as provided below, all costs and expenses incurred in connection
with the Merger will be paid by the party incurring the cost or expense. NSU and
Michael will each pay one-half of (i) all filing fees required to be paid under
the HSR Act in connection with the Merger (but excluding any HSR filing in
connection with the Distribution), (ii) all cost of filing fees with respect to
the NSU Registration Statement, and (iii) all costs of qualifying New Michael
Common Stock to be issued in the Reorganization under state blue sky laws to the
extent such qualification is necessary.
In the event the Reorganization Agreement is properly terminated: (i) by
Michael or NSU due to the failure of NSU to obtain the requisite shareholder
approval for the NSU Proposals; (ii) by Michael due to the failure by NSU to
satisfy certain conditions or if any of NSU's warranties and representations are
not true and correct and the failure to be true and correct would have a
material adverse effect on NSU; (iii) by NSU if the Average Price of Michael
Common Stock is less than $11.00 per share; (iv) by Michael if a representation
or warranty given by NSU in the Reorganization Agreement is updated in such a
way that the information indicates that NSU has suffered or will suffer a
material adverse effect, or in the case of NSU's representation in the
Reorganization Agreement regarding NSU's liabilities as of the Effective Time,
Michael determines that NSU has suffered or will suffer a material liability,
which has not been cured within 15 days after notice to NSU of Michael's intent
to terminate because of the updated information; or (v) by NSU if holders of in
excess of 1% of the outstanding NSU Common Stock effectively exercise
dissenters' rights, then, within ten days after written demand from Michael, NSU
will pay to Michael an amount equal to the out of pocket expenses incurred by
Michael in connection with the transactions contemplated by the Reorganization
Agreement, up to an aggregate of $500,000, payable either, at the option of NSU,
in cash or in shares of Michael Common Stock having a fair market value
(determined on the basis of the average closing sales price of Michael Common
Stock during the twenty trading days immediately preceding such termination)
equal to such amount.
In the event the Reorganization Agreement is terminated (i) by Michael or
NSU due to the failure of Michael to obtain the requisite stockholder approval
for the Reorganization Agreement and the Merger; (ii) by NSU due to the failure
of Michael to satisfy certain conditions or, if any of Michael's warranties and
representations are not true and correct, and the failure to be true and correct
would have a material adverse effect on Michael; (iii) by Michael if the Average
Price of Michael Common Stock is more than $17.00 per share; (iv) by NSU after
notice to Michael and an opportunity to cure if a representation or warranty
given by Michael in the Reorganization Agreement is updated in such a way that
the information indicates that Michael has suffered or will suffer a material
adverse effect or material liability; or (v) the transactions contemplated by
this Agreement are not consummated solely because Michael has not obtained the
necessary modifications to its material debt instruments or prepaid such debt
instruments, then, within ten days after written demand from NSU, Michael must
pay to NSU an amount equal to the out of pocket expenses incurred by NSU in
connection with the transactions contemplated by this Agreement, up to an
aggregate of $500,000, payable either in cash, or in shares of Michael Common
Stock having a fair market value (determined on the basis of the average closing
sales price of Michael Common Stock during the twenty trading days immediately
preceding such termination) equal to such amount.
The expense reimbursement provisions in the Reorganization Agreement are
the sole and exclusive remedies of Michael and NSU for any termination of the
Reorganization Agreement.
THE DISTRIBUTION AGREEMENT
The following information describes certain aspects of the Distribution
Agreement. This description does not purport to be complete and is qualified in
its entirety by reference to the Appendices hereto, including the Reorganization
Agreement and the exhibits thereto, which is attached to this Proxy
Statement/Prospectus as Appendix I and is incorporated herein by reference and
the Distribution Agreement, which is attached to the Reorganization Agreement as
Exhibit C. All Michael stockholders and NSU shareholders are urged to read
Appendix I in its entirety. See also "THE REORGANIZATION AGREEMENT."
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GENERAL
The Reorganization Agreement provides that NSU will, and will cause ENStar
to, execute and deliver the Distribution Agreement prior to the Effective Date.
The Distribution Agreement requires NSU to contribute and transfer to ENStar or
a ENStar subsidiary, as appropriate, all of NSU's assets (the "NSU Transferred
Assets"), except for the NSU Retained Assets. In addition, ENStar will assume
all liabilities of NSU (i) arising at any time prior to the Merger Effective
Date, other than the NSU Assumed Liabilities, or (ii) arising as a result of the
Distribution other than the NSU Assumed Liabilities (the NSU Transferred
Liabilities"). With certain limited exceptions, all intercompany receivables,
payables and loans between NSU and any NSU subsidiary in existence as of the
Effective Date will be eliminated.
In the Distribution Agreement, ENStar acknowledges that NSU is not
representing or warranting in any way (i) as to the value or freedom from
encumbrance of, or any other matter concerning, any NSU Transferred Assets or
(ii) as to the legal sufficiency to convey title to any such assets or the
execution and delivery of the Distribution Agreement. All such assets are being
transferred as is, where is, and ENStar will bear all economic and legal risks
with respect to the NSU Transferred Assets.
CONDITIONS
The Distribution is expressly conditioned on the prior consummation of the
Merger. The Distribution will not occur (i) if, on the Effective Date, NSU has
not received an opinion of tax counsel or a private letter ruling from the IRS
to the effect that the Distribution will qualify as a tax-free spin-off under
Section 355 of the Code, and (ii) unless prior to such time the following
conditions have been satisfied or waived: (a) the transfer of the NSU
Transferred Assets to and the assumption of the NSU Transferred Liabilities by
ENStar has been completed, (b) the ENStar Common Stock has been approved for
quotation on the Nasdaq National Market or listing on a national securities
exchange, (c) the ENStar Board has been elected by NSU, as sole shareholder of
ENStar; (d) the ENStar Registration Statement has been declared effective by the
Commission and the Form 8-A relating to the shares of ENStar Common Stock to be
distributed in the Distribution has become effective under the Exchange Act; and
(e) all conditions precedent to the obligations of NSU and Michael under the
Reorganization Agreement (other than consummation of the Distribution) will have
been satisfied or waived and the Merger has been consummated.
THE DISTRIBUTION
On or prior to the Effective Date, NSU will deliver to its transfer agent
certificates representing all of the outstanding shares of ENStar Common Stock.
On the Effective Date, immediately after the Effective Time, NSU will deliver to
such transfer agent an instruction to distribute as promptly as practicable
following the Effective Date to each holder of record of NSU Common Stock on the
record date for the Distribution stock certificates evidencing one share of
ENStar Common Stock for every three shares of NSU Common Stock held of record by
such shareholder on such record date for the Distribution and cash in lieu of
any fractional shares of ENStar Common Stock. No certificate or scrip
representing fractional shares of ENStar Common Stock will be issued as part of
the Distribution, and in lieu of receiving fractional shares each such holder of
NSU Common Stock pursuant to the Distribution will receive cash for such
fractional share. If the number of outstanding shares of ENStar Common Stock
exceeds the amount to be distributed in the Distribution, then the remaining
shares will be deemed to have been contributed by NSU to the capital of ENStar
and retired and canceled. All of the shares of ENStar Common Stock issued in the
Distribution will be fully paid, nonassessable and free of preemptive rights.
CERTAIN COVENANTS
The Distribution Agreement provides that New Michael will not, nor will it
permit Michael to do any of the following during the two year period following
the Effective Date: (i) liquidate Michael; (ii) merge Michael with or into
another corporation, unless Michael is the surviving corporation and the merger
is not treated for tax purposes as a sale or other disposition of Michael Common
Stock; (iii) sell any shares of Michael Common Stock or cause Michael to issue
any shares of Michael Common Stock to any party other
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than NSU; or (iv) sell any assets of New Michael to any third party not
otherwise an affiliate of the foregoing, except for (a) sales in the ordinary
course of business or (b) sales of assets if, after giving effect to such sales,
Michael will retain at least 90% of the fair market value of its gross assets in
active trades or businesses within the meaning of Section 355 of the Code;
provided, however, New Michael or Michael may undertake any of the actions
listed above if (1) ENStar consents thereto or (2) New Michael obtains either a
tax opinion or a favorable private letter ruling from the IRS, in each case
reasonably satisfactory to ENStar, to the effect that the actions to be
undertaken would not adversely affect the tax free nature of the Merger or the
Distribution to all of the parties thereto. The shareholders of record of NSU on
the record date for the Distribution are third party beneficiaries of the
foregoing restrictions.
ENStar and NSU have agreed in the Distribution Agreement that, on or prior
to the Distribution Date, to the extent required under any indenture with
respect to any of the outstanding debentures or any of the outstanding
subordinated extendible or fixed time certificates of NSU, they will execute and
deliver supplemental indentures or other agreements or instruments evidencing
ENStar's assumption of NSU's obligations with respect to such outstanding
debentures and subordinated extendible and fixed time certificates; provided,
however, that as between NSU and ENStar, the NSU Indebtedness is not considered
an NSU Transferred Liability and New Michael, after the Effective Time, shall be
responsible for the payment in full, in accordance with the terms thereof of all
of the NSU Indebtedness and shall indemnify ENStar for any and all liabilities
with respect to the NSU Indebtedness.
INDEMNIFICATION
From and after the Effective Date, ENStar will indemnify New Michael,
Michael and all Michael subsidiaries and Merger Co. against: (i) all liabilities
(other than the NSU Assumed Liabilities) of NSU or any NSU subsidiary (other
than Michael and its Subsidiaries), including any subsidiary owned by NSU prior
to the Effective Date but not owned by NSU on the Merger Effective Date, arising
out of: (a) the NSU Transferred Liabilities, and (b) the transactions
contemplated under the Distribution Agreement, including the Distribution and
any taxes as a result of the Distribution (other than (X) any liabilities
resulting from any breach by New Michael, after the Effective Date, of the
Distribution Agreement, (Y) any liability of NSU for taxes resulting from a
breach by New Michael of the restrictions set forth above relating to the two
year period after the Effective Date, and (Z) obligations, after the Effective
Date, expressly assumed by New Michael under the Distribution Agreement); (ii)
all liabilities arising from any claim made by any shareholder of ENStar on or
after the Effective Date or by any shareholder or former shareholder of NSU
prior to the Effective Date relating to any act or omission of NSU on or prior
to the Effective Date in connection with the Merger or any of the other
transactions as contemplated by the Reorganization Agreement; (iii) all
liabilities assumed by ENStar in the Distribution Agreement relating to the
employee benefit plans of NSU; (iv) all liabilities of ENStar or any subsidiary
of ENStar arising out of transactions or events entered into or occurring after
the Effective Date, or any action or inaction, including but not limited to,
contracts, commitments and litigation, with respect to, entered into or based
upon transactions or events occurring after the Effective Date with respect to
ENStar or any subsidiary of ENStar (other than the NSU Assumed Liabilities); (v)
any breach of the Distribution Agreement by ENStar or any subsidiary of ENStar
after the Effective Date; and (vi) damages, costs, and expenses including
attorney's fees incurred in defending and settling claims for such liabilities.
From and after the Effective Date, New Michael will indemnify ENStar and
any ENStar subsidiary against: (i) all liabilities of New Michael, Michael or
any subsidiary of New Michael or Michael arising out of transactions or events
entered into or occurring after the Effective Date, or any action or inaction,
including but not limited to, contracts, commitments and litigation, with
respect to, entered into or based upon transactions or events occurring after
the Effective Date with respect to New Michael, Michael, any subsidiary of New
Michael after the Effective Date or any subsidiary of Michael, other than any
liability arising out of the NSU Transferred Liabilities; (ii) all liabilities
relating to the NSU Assumed Liabilities; (iii) all liabilities of Michael or any
subsidiary of Michael arising before, on or after the Merger Effective Date;
(iv) all liabilities arising from any claim made by any current or former
Michael stockholder or shareholder of New Michael after the Effective Date who
was a Michael stockholder or NSU shareholder immediately prior to the
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<PAGE> 60
Effective Date relating to any act or omission of Michael in connection with the
Merger or any of the other transactions contemplated in the Reorganization
Agreement or the Distribution Agreement; (v) any breach of the Distribution
Agreement by New Michael after the Merger Effective Date; and (vi) damages,
costs and expenses including attorney's fees incurred in defending and settling
claims for such obligations, expenses or liabilities.
The Distribution Agreement provides for certain procedures for the parties
to assert claims for indemnification thereunder, including the mediation and
arbitration of disputes arising under the Distribution Agreement. In the event
that New Michael realizes a benefit in the form of a reduction in the federal or
state income taxes which New Michael would otherwise be obligated to pay, as a
result of the net operating loss carryforwards properly allocable to New Michael
from all tax periods prior to or ending on the Effective Date, ENStar has the
right to set-off the amount of any such tax savings against any liability of
ENStar under the Distribution Agreement (including the indemnification
obligations described above).
In order to provide for the required payments to be made to satisfy
Dissenters' claims, New Michael will retain cash in an amount to be agreed upon,
in excess of the cash applied to NSU's indebtedness. Any cash not used for this
purpose will be delivered to ENStar after payment of all Dissenters' claims.
ENStar also is required to pay or cause the release of New Michael from certain
obligations of NSU under certain leases and NSU's guarantee of indebtedness of a
subsidiary of NSU within three years after the Effective Date (the date of the
release of such obligations, the "Release Date").
In order to further provide that ENStar will be able to meet its
indemnification obligations to New Michael under the Distribution Agreement,
ENStar has agreed in the Distribution Agreement that it will not: (i) pay any
dividends, whether in cash or in property, or make any other distribution to its
shareholders, or redeem any of its capital stock for cash or property; (ii)
sell, transfer or dispose of any material amount of its assets in a single
transaction or related series of transactions, except in the ordinary course of
its business or for fair value; or (iii) sell, transfer or dispose of all or
substantially all of its assets or engage in any merger, consolidation or
reorganization unless (a) in the case of the sale, transfer or other disposition
of all or substantially all of its assets, the purchaser assumes the obligations
of ENStar (jointly and severally with ENStar) under the Distribution Agreement,
(b) in the case of a merger, consolidation or reorganization, the surviving
entity assumes the obligations of ENStar under the Distribution Agreement, or
(c) the Market Value (as defined below) of ENStar immediately after giving
effect to such dividend, distribution, redemption or other transaction is at
least equal to the following amounts during the following periods: (X)
$9,000,000 during the period beginning on the Effective Date and continuing to
the later to occur of (a) the Release Date or (b) the third anniversary of the
Effective Date; (Y) $3,000,000 during the period from the end of the period
referenced in clause (X) above and continuing to the fifth anniversary of the
Effective Date. The term "Market Value" is defined in the Distribution Agreement
as the greater of: (a) the market capitalization of ENStar's outstanding equity
securities, if ENStar is a publicly traded company, or (b) the net book value of
ENStar computed in accordance with generally accepted accounting principles,
except that securities owned by ENStar which are publicly traded shall be valued
at their market value without any adjustment for lack of liquidity or control
premium, but reduced for any taxes payable on the disposition of such
securities, taking into account any and all tax benefits available to ENStar and
using ENStar's then applicable effective tax rate for purposes of such
calculations.
Under the Distribution Agreement, New Michael is required to repay in full
all of the NSU Indebtedness not later than six months after the Effective Date.
All such repayments (excluding any payments made with respect to any instruments
that have matured or otherwise become due and payable in accordance with their
respective terms prior to such repayment date) are to be effected on or about
the same date.
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<PAGE> 61
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The Michael Common Stock is listed on the Nasdaq National Market under the
symbol MIKL. The NSU Common Stock is listed on the Nasdaq National Market under
the symbol NSRU and the Pacific Stock Exchange under the symbol NSU.
The table below sets forth for the calendar quarters indicated, the
reported low and high sales prices of Michael Common Stock and NSU Common Stock
as reported on the Nasdaq National Market, in each case based on published
financial sources, and the dividends declared by Michael on such stock. NSU paid
no dividends during 1993, 1994 or 1995.
<TABLE>
<CAPTION>
NSU
MICHAEL COMMON STOCK COMMON STOCK
----------------------------- --------------
LOW HIGH DIVIDENDS LOW HIGH
------ ------ --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter.................................. $ 8.13 $11.50 $ .05 $4.50 $7.13
Second Quarter................................. 6.50 9.38 .05 3.88 5.50
Third Quarter.................................. 8.63 10.75 .05 4.75 6.50
Fourth Quarter................................. 7.50 9.75 .05 4.50 6.88
1994
First Quarter.................................. 7.88 11.25 .05 4.63 5.63
Second Quarter................................. 9.00 12.38 .05 4.38 6.00
Third Quarter.................................. 10.13 13.25 .05 4.88 6.38
Fourth Quarter................................. 9.25 13.00 .05 4.38 5.75
1995
First Quarter.................................. 9.00 12.38 .05 4.25 5.63
Second Quarter................................. 10.25 13.25 .05 5.00 5.50
Third Quarter.................................. 10.63 14.50 .05 5.13 6.13
Fourth Quarter................................. 10.75 13.75 .05 5.63 8.13
</TABLE>
New Michael expects to continue the Nasdaq National Market listing of NSU,
but will discontinue the Pacific Stock Exchange Listing. It is expected that the
New Michael Common Stock will trade under the symbol MIKL.
ENStar has applied for quotation of the ENStar Common Stock on the Nasdaq
National Market under the symbol ENSR. There currently is no market for the
ENStar Common Stock.
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<PAGE> 62
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
are prepared to give effect to the consummation of the Reorganization. The
Reorganization contemplates that prior to the Effective Date, NSU will transfer
certain of its assets, including its investment in CorVel, and certain of its
liabilities, other than certain indebtedness, to ENStar. The combined historical
net assets and results of the entities that NSU will contribute to ENStar are
contained in the columns labeled ENStar Historical.
The pro forma balance sheet and pro forma statements of earnings of NSU
give effect to the Distribution as if the Distribution had occurred at December
31, 1995 and January 1, 1995, respectively. The unaudited pro forma condensed
combined balance sheet and unaudited condensed combined pro forma statement of
earnings of New Michael have been prepared as if the Reorganization was
consummated on December 31, 1995 and January 1, 1995, respectively.
Assumptions underlying the pro forma adjustments are described in the
accompanying notes which should be read in conjunction with these pro forma
statements. These statements should be read in conjunction with the historical
financial statements of NSU, Michael, ENStar and CorVel, and the notes thereto,
which are incorporated by reference herein. The pro forma statements do not
purport to be indicative of the actual results of operations which would have
occurred had the Reorganization been consummated at the beginning of the period,
or of the future results of operations which may be obtained by ENStar or New
Michael.
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<PAGE> 63
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NEW
NSU ENSTAR NSU MICHAEL MICHAEL
HISTORICAL HISTORICAL PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents......... $ 3,369 $ 246 $ 3,123 $ 1,921 $ 11,050 A $ 1,921
(14,173) A
Accounts receivable, net.......... 8,784 8,784 -- 40,583 -- 40,583
Inventories....................... 6,631 6,631 -- 58,845 -- 58,845
Prepaid expenses and other........ 274 274 -- 1,622 -- 1,622
Net assets held for sale.......... 1,032 1,032 -- -- -- --
-------- -------- ------- -------- --------- --------
Total current assets.............. 20,090 16,967 3,123 102,971 (3,123) 102,971
Property and equipment, net......... 1,453 1,453 -- 184,141 -- 184,141
Investment in Michael............... 68,526 -- 68,526 -- (68,526) B --
Investment in CorVel................ 15,016 11,682 3,334 -- (3,334) A --
Goodwill, net....................... 4,960 4,960 -- 57,829 -- 57,829
Other assets........................ 189 189 -- 14,286 (800) D 13,486
-------- -------- ------- -------- --------- --------
$110,234 $ 35,251 $74,983 $359,227 $ (75,783) $358,427
======== ======== ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable..................... $ 937 $ 937 $ -- $ -- $ -- $ --
Current portion of long-term
debt............................ 13,161 1,088 12,073 11,731 (12,073) A 11,731
Accounts payable.................. 5,239 5,239 -- 27,362 -- 27,362
Accrued liabilities............... 5,163 5,163 -- 21,783 -- 21,783
-------- -------- ------- -------- --------- --------
Total current liabilities......... 24,500 12,427 12,073 60,876 (12,073) 60,876
Long-term debt...................... 29,319 158 29,161 89,690 400C 117,151
(2,100) A
Deferred income taxes............... 21,935 2,972 18,963 28,566 (1,452) A 28,566
(17,511) B
Stockholders' equity................ 34,480 19,694 14,786 180,095 9,168 A 180,095
(9,168) B
(14,786) B
Retired Michael shares.............. -- -- -- -- (27,061) B (28,261)
(400) C
(800) D
-------- -------- ------- -------- --------- --------
Total stockholders' equity.......... 34,480 19,694 14,786 180,095 (43,047) 151,834
-------- -------- ------- -------- --------- --------
$110,234 $ 35,251 $74,983 $359,227 $ (75,783) $358,427
======== ======== ======= ======== ========= ========
</TABLE>
55
<PAGE> 64
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NEW
NSU ENSTAR NSU PRO MICHAEL MICHAEL
HISTORICAL HISTORICAL FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 54,891 $ 54,891 $ -- $ 536,627 $ -- $ 536,627
Operating and product costs..... 39,525 39,525 -- 454,652 -- 454,652
------- ------- ------- -------- ------- --------
Gross profit.................. 15,366 15,366 -- 81,975 -- 81,975
Selling, general, and
administrative expenses....... 14,882 14,333 549 45,729 (449)E 45,829
------- ------- ------- -------- ------- --------
Operating income (loss)....... 484 1,033 (549) 36,246 449 36,146
Interest expense, net........... (4,120) (247) (3,873) (7,635) 400F (9,531)
1,577G
------- ------- ------- -------- ------- --------
Income (loss) before income
taxes and equity in earnings
(loss) of unconsolidated
subsidiaries.................. (3,636) 786 (4,422) 28,611 2,426 26,615
Income tax expense (benefit).... (1,200) 405 (1,605) 11,020 923H 10,338
------- ------- ------- -------- ------- --------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries.................. (2,436) 381 (2,817) 17,591 1,503 16,277
Equity in earnings of
unconsolidated subsidiaries... 5,526 1,191 4,335 -- (4,335)I --
------- ------- ------- -------- ------- --------
Income (loss) from continuing
operations.................... $ 3,090 $ 1,572 $ 1,518 $ 17,591 $(2,832) $ 16,277
======= ======= ======= ======== ======= ========
Net earnings per share.......... $ 0.91 $ 0.97
======== ========
Weighted average shares
outstanding................... 19,328 (2,561)J 16,767
Pro forma income per share --
continuing operations......... $ .49K
=======
Pro forma weighted average
shares outstanding............ 3,217K
</TABLE>
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<PAGE> 65
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
A. To record the January 1996 sale of 350,000 shares of CorVel common stock by
NSU for $11,050,000, to recognize the related gain which will be offset
against existing net operating loss carryforwards and to eliminate the
related deferred income tax liability. These proceeds ($11,050,000),
together with the cash and cash equivalents of NSU ($3,123,000), are then
applied to eliminate a portion of long-term debt and all current maturities
of NSU.
B. To reflect the reacquisition of 2,560,594 Retired Michael Shares and the
assumption of Net Indebtedness of $27,061,000. See "THE
REORGANIZATION -- Effects of the Reorganization" for an example of such
calculation. This entry also eliminates NSU's current equity in Michael, the
related deferred income taxes and the gain recognized on the sale of the
CorVel common stock.
C. To apply fair value purchase accounting to the Net Indebtedness acquired by
New Michael as a part of the Merger. The Net Indebtedness has an effective
interest rate of approximately 10% and is assumed to be retired and replaced
with indebtedness having an effective interest rate of approximately 7% six
months after the Merger. See footnotes F and G below.
D. To reclassify deferred transaction costs of Michael related to the
Reorganization as additional cost of the Retired Michael Shares.
E. To eliminate NSU's nonrecurring corporate general and administrative
expenses of $249,000 and to reflect reduced compensation levels at ENStar by
$200,000. NSU's continuing costs are the costs of administering the Net
Indebtedness retained by New Michael.
F. To record the amortization of the fair market value adjustment recorded by
Michael related to the Net Indebtedness retained by New Michael. (See
footnote C above.)
G. To adjust interest expense related to the Net Indebtedness retained by New
Michael assuming such indebtedness, net of the cash acquired, is retired and
replaced with indebtedness having an effective interest rate of
approximately 7% for the last six months of the year.
H. To adjust income tax expense based on the effective income tax rate for
Michael for the year ended December 31, 1995.
I. To eliminate NSU's equity in earnings in unconsolidated subsidiaries for
Michael and the portion attributable to the CorVel common stock sold in
January 1996.
J. To reduce the number of shares of Michael Common Stock outstanding to
reflect the Retired Michael Shares. The number of Retired Michael Shares was
computed based on the calculations set forth herein under "THE
REORGANIZATION -- Effect of the Reorganization."
K. To reflect the pro forma income per share of ENStar utilizing the weighted
average number of shares of NSU Common Stock outstanding for the year ended
December 31, 1995. The calculation assumes one share of ENStar will be
distributed for every three shares of NSU Common Stock.
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<PAGE> 66
DESCRIPTION OF NEW MICHAEL CAPITAL STOCK
Upon adoption of the New Articles by the shareholders of NSU, New Michael's
authorized capital stock will consist of 50,000,000 shares: 40,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of undesignated
stock. The following description assumes that the New Articles have been adopted
by the shareholders of NSU.
COMMON STOCK
The holders of the Common Stock of New Michael are entitled to receive
ratably such dividends, if any, as may be declared by the New Michael Board out
of funds legally available for the payment of dividends, after provision for
payment of preferred stock dividends, if any. In all matters to come before the
shareholders, holders of the New Michael Common Stock will be entitled to one
vote for each share of New Michael Common Stock held and are not entitled to
cumulate votes, which means that the holders of a majority of the total voting
power of such shares can elect all of the directors entitled to be elected by
the holders of New Michael Common Stock. Shareholders will have no preemptive
rights. In the event of the liquidation, dissolution or winding up of New
Michael, subject to the preferential rights, if any, of preferred shareholders,
the holders of New Michael Common Stock are entitled to share ratably in all
assets of New Michael remaining after provision for payment of liabilities. The
outstanding shares of NSU Common Stock are, and the shares of New Michael Common
Stock to be issued in the Reorganization, when issued as described herein, will
be validly issued, fully paid and nonassessable.
UNDESIGNATED STOCK
Pursuant to the New Articles, the New Michael Board is authorized, without
shareholder approval, to issue one or more classes or series of stock with
respect to which the New Michael Board may determine voting, conversion and
other rights which could adversely affect the rights of holders of New Michael
Common Stock. The rights of the holders of New Michael Common Stock generally
would be subject to the prior rights of any preferred stock with respect to
dividends, liquidation preferences and other matters. Among other things,
preferred stock could be issued by New Michael to raise capital or to finance
acquisitions. The issuance of preferred stock under certain circumstances could
have the effect of delaying or preventing a change of control of New Michael.
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston is the Transfer Agent for the Michael
Common Stock and will be appointed as the transfer agent for the New Michael
Common Stock.
BUSINESS COMBINATION STATUTE AND CONTROL SHARE ACQUISITION ACT
New Michael will be governed by the provisions of Sections 301A.671 and
302A.673 of the MBCA, which may deny shareholders the receipt of a premium for
their stock in the case of certain unfriendly acquisitions and which may also
have a depressive effect on the market price of New Michael's Common Stock. In
general, Section 302A.671 provides that the shares of a corporation acquired in
a "control share acquisition" have no voting rights unless voting rights are
approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% or more in the
election of directors. In general, Section 302A.673 prohibits a public Minnesota
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of four years after the date of the transaction in
which the person became an interested shareholder, unless the business
combination is approved in a prescribed manner. "Business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested shareholder. An "interested shareholder" is a person who is the
beneficial owner, directly or indirectly, of 10% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and at any
time within four years prior to the
58
<PAGE> 67
date in question was the beneficial owner, directly or indirectly, of 10% or
more of the corporation's voting stock.
TAKEOVER OFFERS
Minnesota Statute sec. 80B.01 et seq. (the "Takeover Act") requires
registration of any takeover offer of a company which is an issuer of publicly
traded equity securities (i) which (a) has its principal place of business or
its principal executive office located in Minnesota, or (b) owns or controls
assets located in Minnesota which have a fair market value of at least
$1,000,000, and (ii) which (a) has more than ten percent of its beneficial or
record equity security holders resident in Minnesota, (b) has more than ten
percent of its equity securities owned beneficially or of record by residents in
Minnesota, or (c) has more than 1,000 beneficial or record equity security
holders resident in Minnesota. A takeover offer is an offer to acquire any
equity securities of the described companies from a resident of Minnesota
pursuant to a tender offer or request or invitation for tenders, if after the
acquisition of all securities acquired pursuant to the offer either (i) the
offeror would be directly or indirectly a beneficial owner of more than ten
percent of any class of the outstanding equity securities of the target company
and was directly or indirectly the beneficial owner of less than ten percent of
any class of the outstanding equity securities of the target company prior to
the commencement of the offer; or (ii) the beneficial ownership by the offeror
of any class of the outstanding equity securities of the target company would be
increased by more than ten percent of that class and the offeror was directly or
indirectly the beneficial owner of ten percent or more of any class of the
outstanding equity securities of the target company prior to the commencement of
the offer. A takeover offer does not include: (a) An offer in connection with
the acquisition of a security which, together with all other acquisitions by the
offeror of securities of the same class of equity securities of the issuer,
would not result in the offeror having acquired more than two percent of such
class during the preceding 12-month period; (b) an offer by the issuer to
acquire its own equity securities unless the offer is made during the pendency
of a takeover offer by a person who is not an associate or affiliate of the
issuer; or (c) an offer in which the target company is an insurance company
subject to regulation by the Minnesota Commissioner of Commerce, a financial
institution regulated by the Minnesota Commissioner of Commerce, or a public
service utility subject to regulation by the public utilities commission.
Certain limitations exist which provide that the offer must be made on
substantially the same terms inside and outside the state. The offeree has
certain rights to withdraw securities tendered and the Takeover Act provides
penalties for failure to comply with any provision of the Takeover Act of up to
$25,000 and/or up to 5 years in prison. Shares acquired in violation of the Act
are nontransferable and are denied voting rights for one year after acquisition.
New Michael can call the shares for redemption at the price that the shares were
acquired. Any seller who sells to an offeror who violates the Takeover Act can
sue, subject to the limitations period, in law or in equity, and may sue for
rescission.
BUSINESS OF ENSTAR
ENStar was formed on December 20, 1995, as a wholly owned subsidiary of
NSU, and has had no operations and held no assets. Prior to the Effective Date,
pursuant to the terms of the Distribution Agreement, NSU will transfer all of
its assets and liabilities to ENStar, except the capital stock of Merger Co.,
all of the shares of Michael Common Stock that it holds, certain of its
outstanding indebtedness and a certain amount of cash, to be determined in the
discretion of NSU. The date of such transfer is hereinafter referred to as the
"Asset Transfer Date."
At the time of the Distribution, ENStar's operations will consist of the
operations of its direct and indirect operating companies, which consist of
Americable, Inc. ("Americable") and Transition Networks, Inc. ("Transition"). In
addition, at April 15, 1996, NSU owned 1,225,000 shares of the common stock,
$.0001 par value, of CorVel (the "CorVel Common Stock"), which represents
approximately 27% of the outstanding shares of CorVel Common Stock . The CorVel
Common Stock is traded on the Nasdaq National Market under the Symbol CRVL. The
closing price per share of the CorVel Common Stock on April 15, 1996 was
$ . All of the shares of CorVel Common Stock held by NSU on the Asset
Transfer Date will be contributed to ENStar. NSU may, prior to the Asset
Transfer Date, sell from time to time some of its CorVel Common Stock pursuant
to Rule 144 of the Securities Act; however, it presently does not intend to sell
more
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<PAGE> 68
than 50,000 shares. Proceeds from any such sale or sales would be retained by
NSU to reduce the amount of Net Indebtedness to be assumed by New Michael in the
Reorganization. ENStar contemplates that it will directly employ seven
management and administrative employees.
UNCONSOLIDATED SUBSIDIARY
CorVel. Since its initial public offering in June 1991, CorVel has been
operated as an independent company. As a less-than-majority-owned subsidiary of
NSU, CorVel's operations have not been consolidated with NSU, and NSU's
investment in CorVel is accounted for under the equity method of accounting.
ENStar will account for its investment in CorVel in the same manner. The
following summary of CorVel's business has been prepared from information
reported by CorVel. Additional information regarding CorVel is available from
the reports and other documents prepared and filed by CorVel with the Securities
and Exchange Commission.
CorVel is an independent nationwide provider of medical cost containment
and managed care services designed to address escalating medical costs. CorVel's
services include preferred provider organizations, automated medical fee
auditing, medical case management, independent medical examinations, utilization
review and vocational rehabilitation services. Such services are provided to
insurance companies, third party administrators and employers to assist them in
managing the medical costs and monitoring the quality of care associated with
medical claims.
Since its initial public offering in June 1991, Jeffrey J. Michael and
Peter E. Flynn, each directors of NSU, have been members of the Board of
Directors of CorVel. Notwithstanding the sale by NSU of 350,000 shares of its
CorVel Common Stock in January 1996, and the corresponding reduction in NSU's
percentage ownership in CorVel from approximately 35% to 27%, it is expected
that Messrs. Michael and Flynn will continue to serve as members of the CorVel
Board of Directors and be nominated for re-election to the CorVel Board at the
next annual meeting of stockholders of CorVel. There are no agreements, however,
between NSU and CorVel or any of CorVel's stockholders requiring the nomination
of Messrs. Michael and Flynn or any designees of NSU for election as directors
of CorVel. NSU also does not have any agreement with CorVel requiring CorVel to
register the shares of CorVel Common Stock held by NSU. At NSU's request in
December 1995, CorVel agreed to register the 350,000 shares of CorVel Common
Stock that were sold in 1996. In the absence of registration of its CorVel
Common Stock, ENStar's ability to sell the CorVel Common Stock will be limited
to sales pursuant to Rule 144 of the Securities Act, and the volume limitations
thereof, and to private negotiated sales, which may adversely affect the ability
of ENStar to sell a large portion of its CorVel Common Stock at a given time.
OPERATING SUBSIDIARIES
GENERAL
Americable. Americable was organized as a Minnesota corporation in 1981 and
was acquired by NSU in December 1986. Americable is a provider of networking and
connectivity products and services used in providing solutions for customers
operating a wide range of data communications systems. Americable has organized
its business into three operating divisions, the Americable Network Technologies
division, the National Distribution Sales division and the Americable Custom
Products division, which are described in more detail below.
Americable Network Technologies provides products and services designed to
build and manage local area network ("LAN") and wide area network ("WAN")
infrastructures for large and medium sized end-users. As a value-added reseller
("VAR"), Americable offers customized, integrated solutions to meet its
customers LAN/WAN needs through a combination of a broad range of network
electronics and software from leading manufacturers and through high-quality
technical services. Americable plans to expand its product and service offerings
to include personal computers ("PCs"), file servers and other computer
peripherals as it seeks to be a single-source provider for all of its customers'
PC and networking needs.
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<PAGE> 69
As a distributor, Americable supplies a wide array of voice and data
communication related products such as cable (both copper and fiber optic),
cable assemblies, components (blocks, jacks, connectors, patch cords, patch
panels) and networking hardware. The principal focus of Americable's
distribution business, conducted primarily through its National Distribution
Sales division in Minneapolis, Minnesota, is to provide quality products, prompt
reliable delivery of such products and strong customer service both before and
after the products are sold. Americable sells to a wide range of customers
throughout the United States in the voice and data communications aftermarket,
including resellers, other distributors, systems integrators, installers and
end-users.
Through Americable Custom Products, Americable manufactures a wide variety
of cable assemblies, sub-assemblies and specialty products for its customers.
While some of these products are manufactured to standard specifications for
sale by Americable through its distribution business, most are custom designed
and manufactured by Americable to customer specifications. These customer
designed products are manufactured for both end-users and original equipment
manufacturers ("OEMs").
Transition. Transition develops, manufactures, markets and supports a broad
line of data networking hardware products that provide physical connectivity for
LANs and mini- and mainframe networks. Physical connectivity devices enable
computing and other electronic devices to communicate over a LAN. These devices
include high-speed switches, managed and unmanaged hubs, transceivers, media
converters and other related networking devices.
Transition's products include intelligent hubs and switches, passive and
active terminal network products, including baluns, media converters and
transceivers, unmanaged Ethernet and Token Ring hubs and related host modules,
multi-port multi-media repeaters, network adapter cards and other passive
devices. Transition sells its products to a number of volume distributors and
VAR's throughout the United States and certain countries world-wide. The
customers that purchase Transition products through its network of distributors
and VAR's include system integrators, installers and end-users.
INDUSTRY
A growing number of organizations are reengineering their businesses and
are using PC-based network technology to enhance productivity. PC networks
increase speed and flexibility, provide improved functionality to end-users and
provide greater productivity, often at lower costs. The growth in demand for
personal computers, along with recent advances in networking technology, have
led to an increase in demand for interconnected LANs and WANs. Such networks
facilitate efficient and rapid data communications among connected work groups
and departments providing for more effective utilization of information and
computing resources. As LANs have proliferated, demand for multi-vendor
interoperability has led to industry standard network protocols and access
methods such as Ethernet and Token-Ring.
More recently there has been an increasing demand to connect users of LANs
in other geographic areas using WANs. Applications such as on-line services,
electronic mail, sharing of databases, multi-site product development and
transaction processing are leading the demand for the inter-networking of LANs
and WANs. The integration of LANs and WANs requires data communication products
which efficiently, reliably and quickly transmit data to appropriate locations.
In the face of this rapidly changing technological environment, the
decision-making process that organizations face when planning, selecting and
implementing information technology solutions is growing more complex.
Organizations must select from numerous product options with shortening life
cycles. Although networks enhance business productivity, they typically present
complex management problems and increased administrative costs. Thus, many
organizations find it increasingly difficult and costly to maintain the internal
infrastructure needed to support their networks. As a result of these trends,
companies increasingly seek to outsource the management and support of their PC
network infrastructure.
It is estimated that in 1995 the overall market in the United States for
networking products and services was approximately $50 billion.
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BUSINESS STRATEGY
Americable. Americable's objective is to be a leading provider of a
complete range of network products and services to medium to large sized
enterprises throughout the United States. To meet this goal, Americable believes
it must seek to maintain its current customer relationships and continually
expand its customer base in the regions in which it operates, continue to
develop strong relationships with its key suppliers, look for opportunities to
expand its branch locations and develop and enhance its value-added service
offerings.
During 1995, approximately 5,200 customers purchased products or services
from Americable. Management at Americable believes that preserving and enhancing
these relationships is a constant priority. Continuous quality improvement in
its operations along with expansion and enhancement of its product and service
offerings are some of the means that Americable utilizes to enhance its customer
relationships.
Management at Americable also believes that developing strong relationships
with the leading manufacturers of networking products allows Americable to offer
its customers name brand products that provide the best value in meeting their
networking needs. Americable has developed relationships with leading
manufacturers within each of its principal product lines, such as Bay Networks,
Inc., AMP Incorporated and Berk-Tek Inc. and seeks to add new relationships to
expand its value-added service capabilities. Americable believes that utilizing
a select range of suppliers allows it to provide superior customer service
because its technical personnel are more familiar with the products sold and
because such high quality products are generally more reliable. Further, such
strong relationships result in greater continuity of product supply.
From 1991 to 1995, Americable's domestic sales have increased from $27.6
million to $42.2 million. This increase in sales has been generated through
internal growth at Americable's four principal locations in Atlanta, Chicago,
Dallas and Minneapolis, primarily as a result of the addition of new sales,
engineering and technical personnel. Also during 1995, Americable opened smaller
satellite offices in Milwaukee, Wisconsin and Fargo, North Dakota. Americable
plans to continue its growth strategy through the addition of new sales,
engineering and technical personnel in both existing locations and new
geographic markets. Americable also intends to look for opportunities to acquire
businesses in the same or related industries in an effort to expand
geographically or enhance its value-added service offerings.
Since 1989, Americable has made substantial investments in the development
of its value-added networking capabilities primarily through the addition of
engineering and technical personnel. During 1995, Americable introduced a number
of service offerings designed to provide its customers with customized
integrated solutions to meet their unique network computing needs. Revenues from
technical services and installation in 1995 represented 7% of Americable's total
revenues. Americable believes there are opportunities to increase Americable's
overall gross margins by increasing the volume of services that it currently
offers to its customers and intends to focus on increasing its service revenues.
Transition. The market for Transition's products is characterized by rapid
technological change, constantly evolving industry standards and rigorous
competition with respect to timely product innovation. Because the introduction
of products embodying new technology and the emergence of new industry standards
can render existing products obsolete and unmarketable, Transition believes that
its future success will depend upon its ability to develop, manufacture and
market new products and enhancements to existing products on a cost-effective
and timely basis. Transition seeks to identify niche market opportunities for
new or enhanced products and quickly respond by offering a new or enhanced
product that may have greater capabilities, better functionability or
flexibility, greater ease of use or equivalent capabilities or functionability
but a lower price point than other competitive products.
As LANs have proliferated, demand for multi-vendor interoperability has led
to industry standard network protocols and access methods such as Ethernet,
Token-Ring and Fiber Distributed Data Interface ("FDDI"). Transition has
developed the majority of its LAN products using industry standards, primarily
Ethernet. Ethernet's cabling media has evolved from coaxial cable to its
associated 10BaseTL fiber optic cabling. Management at Transition believes that
the LAN/WAN products market will continue to be driven by the migration of
end-users to new applications that demand more speed and flexibility.
Accordingly,
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Transition's research and development efforts have been targeted at high speed
(100Mbs+) LANs and the integration of LANs and WANs into a single platform.
PRODUCTS AND SERVICES
Americable. The following is a summary of Americable's consolidated sales
by principal product group for 1995:
<TABLE>
<CAPTION>
AS A PERCENT OF SALES
---------------------
<S> <C>
Networking --
Products.................................... 41%
Services/Installation....................... 7%
Cable Assemblies.............................. 18%
Bulk Cable.................................... 18%
Other Connectivity Products................... 16%
</TABLE>
In an effort to offer its customers a "One Company, One Call" solution,
each of the above products and service groups is delivered through one or more
of Americable's operating divisions. Although each division is a separate
business unit, each division works in concert with the others to leverage
Americable's product and service offerings across its broad customer base. Set
forth below is a description of each division's operations and market focus.
Americable Network Technologies
Through Americable Network Technologies, Americable provides products and
services designed to build and manage LAN and WAN infrastructures for large and
medium sized enterprises. As a VAR, Americable offers the following customized,
integrated LAN/WAN solutions:
- Network Electronics -- Americable supplies, implements and supports a
select range of suppliers of electronics and software platforms from
manufacturers such as Bay Networks Inc., 3Com Corp., Cisco Systems Inc.,
Shiva Corp., Novell Inc., Microsoft Corp., Sun Microsystems Inc. and
Compaq Computer Corporation. Americable's line of network products include
concentrators, hubs, switches and routers for both existing and emerging
technologies such as Ethernet, Token Ring, FDDI, Fast Ethernet and
Asynchronous Transfer Mode ("ATM").
- Network Integration -- Americable's advanced engineering group utilizes
network management and routing solutions in providing customers a range of
options from simple remote access solutions to the largest multi-protocol
inter-networking routers currently available.
- Network Management -- Americable's network management solutions provide
customers assistance with network troubleshooting, diagnostics, security,
optimization and proactive network maintenance. Americable installs Bay
Networks Optivity network management software, one of the leading network
management software systems in the industry. Americable can also supply
each of the four industry-leading network management system (NMS)
platforms including: Hewlett Packard's OpenView/UNIX and OpenView/DOS, Sun
Microsystems' SunNet Manager, IBM's NetView/6000 and Novell's NetWare
Management System (NMS).
- Network Applications -- Americable offers remote access products and
services that allow the end-user to operate outside of his or her office
while still being able to connect to his or her LAN. In addition,
Americable is capable of offering solutions for desktop video conferencing
and Internet access and security solutions.
- Structured Wiring Systems -- Americable provides project management,
design and implementation of structured wiring systems for data
communications.
- Network Maintenance Services -- Americable provides a broad line of
maintenance services including fixed fee network support, telephone
support, guaranteed response times, next business day on-site
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response for problem resolution, "spare-in-the-air" hardware replacement
and cabling system diagnosis and repair. In addition, Americable offers
several fixed price service offerings for preventative maintenance such as
CASE (Cable Analysis Service) and EASE (Enterprise Analysis Service).
Americable is committed to providing networking products, services and
systems to customers of all sizes in the geographic areas served by its four
principal regional offices. Sales from the Americable Network Technologies
division constituted approximately 74% of Americable's net sales in 1995. In
addition to supported distribution sales, Americable Network Technologies will
oversee the design and implementation of projects involving multiple LANs across
a wide area network, consisting of multi-vendor hardware products and several
thousand nodes. Value-added projects generally range in size from $10,000 to
$500,000. During 1995, sales derived from value-added projects and services
consisted of approximately 18% of Americable's net sales. Value-added projects
and services sales include sales of products such as bulk cable, cable
assemblies and networking devices and services such as training, installation
and maintenance.
The National Distribution Sales Division
Through its distribution business, operated principally through the
National Distribution Sales division, Americable maintains a wide variety of
high-quality products in its inventory (over 5,000). Product inventory ranges
from connectivity products such as bulk cable, connectors, patch panels, racks
and other cable accessories to more complex networking electronic devices such
as concentrators, hubs, switches and routers. As a distributor, Americable
generally inventories products from multiple manufacturers. Principal
manufacturers of connectivity products include Berk-Tek, Inc., Amp Incorporated,
General Cable Corp., The Siemens Company and Leviton Manufacturing, Inc. In
addition, in an effort to reduce its inventory levels, Americable purchases a
number of networking products through large distributors such as Tech Data
Corporation, Gates/Arrow and Ingram Micro, Inc.
Americable also maintains an integrated, real-time, on-line computerized
system for order entry, fulfillment and inventory control. This on-line computer
system allows sales personnel to advise customers over the phone of product
specifications, availability and order status. All orders are normally shipped
within 24 hours of receipt and, when necessary, can be shipped on a "same-day"
basis.
The National Distribution Sales division seeks to add value for its
customers by providing superior customer service. All of Americable's sales
representatives and other sales and marketing personnel are trained to assist
customers in product selection, implementation and system upgrading and
expansion. The division's sales representatives are supported by the technical
staff of the Americable Network Technologies division, who have a broad range of
expertise in various networking technologies.
The National Distribution Sales division services customers of all sizes in
the voice and data communications aftermarket. Customer orders range in size
from under $50 to several hundred thousand dollars. Average order size of the
division during 1995 was approximately $600. The distribution business of
Americable (including sales of cable assemblies) constituted approximately 26%
of Americable's net sales in 1995.
Americable Custom Products
As a natural extension of its distribution business, and consistent with
Americable's marketing strategy to be a single-source provider for its
customers, the Americable Custom Products division provides a manufacturing
capability to satisfy the individual needs of those customers that may require
custom or specialty cable assemblies. Americable, working to its customers'
specifications, can manufacture custom designed products such as copper,
fiber-optic, small computer system interface (SCSI) and AS/400 cable assemblies
and sub-assemblies.
All Americable manufactured products are subject to strict quality control
standards to insure that they are of the same high quality as other, vendor
manufactured, distributed products. During 1996, Americable expects to complete
the process of implementing the quality standards of ISO 9002 for its
manufacturing and primary distribution operation in Minneapolis. ISO 9002 is an
international protocol for documenting processes and procedures used in
establishing a consistent manufacturing quality system.
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Sales from the Americable Custom Products division are generated from both
end-user and OEM customers. During 1996, Americable hopes to expand the market
for its custom and specialty cable assemblies, utilizing its in-house
manufacturing expertise of the Americable Custom Products division. For 1995,
sales to OEM customers constituted approximately 26% of total cable assembly
sales and approximately 5% of Americable's net sales.
Transition. Transition's products encompass three inter-networking and
physical connectivity product families, which include (i) passive and active
terminal network products, (ii) basic LAN products and (iii) advanced LAN
products. These products encompass LAN and WAN components, which allow
Transition to offer work-group and enterprise-wide networking solutions.
The terminal products family of products includes both passive and active
connectivity devices such as baluns, media converters, and transceivers that
attach personal computers to a network, thereby enabling the user to communicate
with other users in the LAN. In addition, Transition's "PowerStar" line of
active hubs provide cost-effective solutions for converting a S/3X or AS/400
Twinax daisy chain topology to an unshielded twisted pair star topology, thereby
improving network reliability and flexibility. During 1995, the terminal
products family comprised approximately 27% of Transition's net sales.
Transition's basic LAN product line includes unmanaged Ethernet and Token
Ring hubs and related host modules; multi-port multi-media repeaters that
regenerate the signal, thereby allowing expansion capabilities and providing
connectivity and management of the different cabling schemes used throughout a
LAN; network adapter cards that provide direct connection from the personal
computer to a LAN; and other passive devices that provide a structured wiring
system for mini- and mainframe computer environments. Transition has developed
its Ethernet and Token Ring LAN products using industry standards. During 1995,
the basic LAN product line comprised approximately 63% of Transition's net
sales.
The advanced LAN product family of Transition is a potentially high growth
product area with devices that utilize computer processors and sophisticated
internal software to manage and direct information across complex networks.
Transition's advanced LAN products are led by a multi-function hybrid
bridge/router that allows high speed switching across networks. This group of
products also includes manageable, stackable Ethernet and Token Ring hubs.
Transition believes that as network centric systems continue to grow in
sophistication, this product area will provide additional revenue opportunities.
The majority of Transition's research and development has been concentrated in
advanced LAN products with new offerings planned for 1996. During 1995, the
advanced LAN product family comprised approximately 10% of Transition's net
sales. Transition expects a significant portion of its sales growth in the
future will be derived from the introduction of new advanced LAN products.
MARKETING AND CUSTOMERS
Americable. Americable provides its products and services to a wide range
of customers, including installers, resellers, other distributors, system
integrators, OEMs and end-users. Customer relationships are developed both
face-to-face and via the telephone.
Americable's marketing strategy is two-tiered. A national effort is
centered on telemarketing through the National Distribution Sales division in
Minneapolis, Minnesota. Additionally, Americable operates each of its operating
divisions from its four principal regional offices in order to provide its
customers in each region the full array of value-added networking products and
services offered by the company.
Americable has 16 outside sales representatives in addition to 43
telemarketing and sales support representatives. The sales force is supplemented
by 22 regional technical service engineers and technicians and two corporate
product managers. Americable sales representatives undergo continuous training
and attend company-sponsored classes in order to enhance their technical
expertise and marketing techniques. Also, many of Americable's sales and
technical personnel attend vendor-sponsored training and education programs
mandated by such vendors in order for Americable to qualify as a licensed
reseller of their products.
Americable also uses direct mailings, brochures and catalogs in marketing
the products that it distributes. Americable's catalog, which generally is
published every 18 months, is designed to provide end-users with not
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only product specifications, but additional technical information to assist them
in connection with their system design. Americable's latest catalog is expected
to be released in March 1996.
During 1995, Americable had one customer that constituted approximately 11%
of net sales. In addition, in 1995 Americable derived approximately 61% of its
sales from its largest 100 customers.
Transition. Transition distributes its products through a number of volume
distributors and VARs throughout the United States and in over 50 countries
worldwide. Distributors and VARs purchase Transition's products at standard
discounts based on certain volume-based incentive programs. Transition's
international sales have accounted for a substantial portion of its sales
growth, coming primarily from the United Kingdom, South Africa, Australia and
Sweden. During 1995, revenues from outside the United States accounted for
approximately 37% of net sales.
Transition's continued growth will be dependent, in part, upon its ability
to expand its domestic and international distributor base with high quality
VARs. A significant benefit for a distributor or VAR is that Transition does not
sell directly to end users. Transition's distributors and VARs carry other
products that are complementary to, and compete with those of Transition, and
these non-exclusive distributors and VARs may choose to give higher priority to
products of other suppliers or competitors.
Transition has several marketing programs to support the sale and
distribution of its products. Its marketing programs are designed to generate
sales leads for its distribution channels, as well as to enhance brandname
recognition. Transition's marketing activities include frequent participation in
industry trade shows, advertising in major trade publications, public relations
campaigns, the distribution of sales literature and product specifications, and
ongoing communications with its distributors. In addition, Transition offers
comprehensive pre- and post-sales technical support, distributor/VAR product
training, and a strategic test partner program. Transition utilizes reseller
incentive programs such as co-op funds to increase localized print advertising
and name recognition. The marketing budget has been increased for both 1995 and
1996 to enhance Transition's image and name recognition.
RESEARCH AND DEVELOPMENT
Transition. Transition performs all of its research and development
activities at its headquarters in Eden Prairie, Minnesota. Transition believes
that its future success depends on its ability to achieve market acceptance of
new product offerings, especially in the advanced LAN products area. The
engineering staff has increased by 36% since the end of 1994, to accelerate
development in this area. Although there can be no assurance that its
development efforts will result in commercially successful products, Transition
intends to continue to make substantial investments in the development of new
and enhanced products. During 1995, research and development expenses totaled
approximately $1,440,000, or approximately 10% of net sales.
MANUFACTURING
Americable. Americable's manufacturing operations consist of the
manufacture of custom or specialty cable assemblies including copper,
fiber-optic, small computer system interface (SCSI) and AS/400 cable assemblies
and sub-assemblies through its Americable Custom Products division.
Transition. Transition's manufacturing operations consist primarily of the
final assembly and quality control testing of materials, components and
subassemblies. Transition uses third parties to perform printed circuit board
assembly. Transition's products include certain components that are currently
available from single or limited sources and may require long order lead times.
Any reduction in supply or substantial change in costs of components could
affect Transition's ability to deliver its products in a timely and
cost-effective manner and may adversely impact Transition's operating results.
COMPETITION
Americable. Americable faces substantial competition within each of its
business segments from a large number of companies, some of which are larger,
have greater financial resources, broader name recognition and, in many cases,
lower product and operating costs than Americable. The Americable Network
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Technologies division faces competition from large system integrators such as
AmeriData Technologies, Inc., Vanstar Corporation and a significant number of
smaller regional VAR's and system integrators. Significant competitors in the
National Distribution Sales division's business include Anixter Bros., Inc., a
subsidiary of Anixter International, Inc, and Graybar Electric Co., Inc. The
products of the Americable Custom Products division are not protected from
competition by virtue of any proprietary rights such as trade secrets or
patents. Americable Custom Products encounters competition from domestic
companies such as Kent Electronics Corporation and a number of smaller domestic
companies, in addition to a number of products manufactured outside the United
States.
Transition. The industry in which Transition operates is highly
competitive, and Transition believes that such competition will continue to
intensify. The industry is characterized by rapid technological change, short
product life-cycles, frequent product introductions and evolving industry
standards. Transition competes with a number of independent companies focused on
designing and manufacturing products for the LAN market, including, among
others, 3Com, Bay Networks, Cabletron System, Inc., Allied Telesis, Inc., and
Digi International. Most of Transition's competitors are established companies
with significantly greater financial resources, more extensive business
experience, and greater market and service capabilities than Transition. There
can be no assurance that Transition will be able to compete successfully.
Transition's ability to compete successfully depends upon its ability to
adapt to market changes on a timely basis. There are many networking products
currently being offered in the market segments in which Transition competes.
Transition believes that customers evaluate competing products on the basis of
required product features for a particular installation, performance, price and
ease of use. In addition, after installation, customers evaluate the suppliers'
ability to provide readily accessible on-site/remote technical support, if
required, and its reliability when deciding on future orders for additional
equipment. Failure to obtain significant customer satisfaction or market share
could have a material adverse effect on Transition.
PROPERTIES
Americable. Americable's headquarters are located in a 20,000 square foot
facility in Itasca, Illinois, a suburb of Chicago. Americable's principal
distribution and manufacturing operations are located in Minneapolis, Minnesota
(39,000 square feet). This facility includes office, warehouse and production
space. Americable also has branch operations in Dallas, Texas (15,000 square
feet), and Atlanta, Georgia (9,900 square feet) in addition to satellite offices
in Milwaukee, Wisconsin and Fargo, North Dakota. All of Americable's facilities
are leased.
Transition. Transition's headquarters, including its executive and
corporate administration offices, manufacturing, sales and technical support are
located in Eden Prairie, Minnesota, which consists of approximately 20,500
square feet of leased space.
LEGAL PROCEEDINGS
Americable and Transition are engaged in routine litigation incidental to
their respective businesses, which management believes will not have a material
adverse effect upon the business or consolidated financial position of either
company.
NET ASSETS HELD FOR SALE
NSU announced its intention to sell its wholly-owned subsidiary Eagle
Engineering & Manufacturing, Inc. ("Eagle") in March 1991. Eagle designs,
manufactures and installs a variety of environmental control systems for the
cabins of off-road heavy equipment, including air-conditioning, heating and
pressurization systems. Eagle is still wholly owned by NSU, although NSU is
hopeful that it will ultimately be able to sell this subsidiary on terms
acceptable to management. If Eagle is not sold prior to the consummation of the
Reorganization, Eagle will become a wholly owned subsidiary of ENStar and ENStar
management will also attempt to sell Eagle on acceptable terms.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION OF ENSTAR
GENERAL
ENStar is currently an operating unit of NSU. ENStar is comprised of
Americable and Transition along with an equity investment in CorVel and certain
other assets. At December 31, 1995, NSU owned a 35% ownership interest in CorVel
and following the sale of 350,000 shares in January 1996, its ownership was
reduced to 27%. The financial statements of ENStar reflect the investment in
CorVel assuming ENStar owned a 27% ownership interest for all periods presented.
ENStar's investment in CorVel is accounted for as an unconsolidated subsidiary
using the equity method of accounting. The common stock of CorVel is included on
the NASDAQ National Market System under the symbol CRVL.
As described in Note 2 to the Combined Financial Statements of ENStar, the
Combined Statements of Income of ENStar include an allocation of general and
administrative costs incurred by NSU in the management of the operating
companies, investment holding and other assets of ENStar. Management believes
these allocations are reasonable and present the operations of ENStar as though
it was operated on a stand alone basis.
The following are summarized operating results for each of ENStar's
operations for the three years ended December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues
Americable..................................................... $42,160 $36,940 $38,266
Transition..................................................... 14,266 11,779 10,025
Eliminations................................................... (1,535) (1,526) (1,535)
------- ------- -------
$54,891 $47,193 $46,756
======= ======= =======
Gross Profit
Americable..................................................... $ 9,979 $ 8,262 $10,254
Transition..................................................... 5,387 4,603 3,903
------- ------- -------
$15,366 $12,865 $14,157
======= ======= =======
Selling, General and Administrative Expenses
Americable..................................................... $ 8,814 $ 8,220 $10,075
Transition..................................................... 4,465 4,252 2,985
Restructuring charges.......................................... -- -- 1,953
Allocable corporate expenses................................... 1,054 1,095 1,122
------- ------- -------
$14,333 $13,567 $16,135
======= ======= =======
Operating Income (Loss)
Americable..................................................... $ 1,165 $ 42 $ 179
Transition..................................................... 922 351 918
Restructuring charges.......................................... -- -- (1,953)
Allocable corporate expenses................................... (1,054) (1,095) (1,122)
------- ------- -------
$ 1,033 $ (702) $(1,978)
======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
1995 VERSUS 1994
Revenues at Americable increased approximately $5.2 million, or 14.1%, to
$42.1 million. This includes increased revenues of $4.5 million resulting from
higher demand for networking products. Of this amount,
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approximately $3.1 million of sales were attributable to higher volume of
networking products with a large end user customer which is not expected to
continue during 1996. The increase in revenue of Americable also includes
approximately $650,000 of higher volume of service revenues due to increased
focus on services and the addition of technical personnel. In addition, sales of
cable assemblies increased by approximately $100,000 primarily a result of
higher demand of OEM assemblies offset by reduced pricing within modular
assembly applications due to technological changes.
Revenues at Transition increased approximately $2.5 million, or 21% which
includes increased sales of approximately $1.1 million, or 25%, to international
customers and approximately $1.4 million, or 19% higher sales to domestic
customers. Sales to international customers consisted of 37% and 35% of
Transition's revenues in 1995 and 1994, respectively. This growth was due to
increased unit sales of its terminal products and both its basic and advanced
LAN product groups. Overall, these increases are primarily a result of new
product introductions during the end of 1994 and throughout 1995. During 1995,
new product introductions and enhancements accounted for $1.1 million, or 9% of
net sales. Transition's ability to maintain its present level of sales and its
continued sales growth is highly dependent upon its ability to offer new
products that meet customer's demands in a rapidly changing market, particularly
in light of the relatively short life cycle of its products.
Combined gross profit, as a percentage of revenues, increased to 28% in
1995 as compared to 27.3% in 1994. Increased margins at Americable are primarily
attributable to a higher mix of value-added service revenue and, to a lesser
extent, improved pricing and improved manufacturing efficiencies within its
cable assembly operations. Decreased margins at Transition were a result of
lower pricing on certain product lines due to increased competition. For 1996,
ENStar expects its gross profit margins to decline due to expected competitive
pricing pressures on products sold by both Americable and Transition.
ENStar's selling, general and administrative expenses increased $766,000,
or 5.6% to $14.3 million from $13.6 million in 1994. Operating expenses at
Americable increased approximately $600,000, or 7% which reflects higher selling
expenses of approximately $700,000 which is primarily a result of higher sales
commissions and the addition of technical and engineering personnel, along with
additional expense for amounts earned under its incentive compensation program
of approximately $200,000. These increases were offset by the impact of
approximately $300,000 of annualized savings realized through reorganizations
effected within its U.S. operations in the third quarter of 1994 and the first
quarter of 1995. Americable expects that its selling expenses, as a percentage
of revenues, may increase during 1996 through the addition of sales and
technical personnel in new geographic locations in addition to costs associated
with a new catalog expected for release in the first quarter of 1996. These
anticipated increases in operating expenses may result in lower operating
profits at Americable, if the company is unable to maintain current gross profit
margins and continued sales growth.
Transition increased operating expenses approximately $213,000 or 5%. This
includes approximately $125,000 of increased sales and marketing expenses due to
higher promotional and advertising expenses associated with new product
introductions and the company's name change, and approximately $220,000 of
increased engineering expenses associated with the additional personnel to
support new product development. In addition, this increase reflects higher
expenses of approximately $175,000 related to moving to a new facility and the
addition of administrative personnel and related facility expenses needed to
support its overall growth. These increases were offset by a decrease in
engineering expenses of approximately $300,000 due to lower spending on parts,
equipment, and other costs related to hardware development projects. This
reflects a shift towards higher software development associated with its
advanced LAN products. Transition expects that its research and development
expenses will increase in 1996 based on the planned addition of engineering
personnel for new product development. There can be no assurances, however, that
its research and development efforts will result in commercially successful new
products in the future. In addition, Transition believes that sales and
marketing expenses may continue to increase in terms of absolute dollars in an
effort to differentiate its products and enhance its competitive position. These
anticipated increases in operating expenses are expected to result in lower
operating profit at Transition, particularly if the company is unable to
maintain its current gross profit margins and continued sales growth.
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Net interest expense decreased by approximately $100,000 due primarily to
lower outstanding borrowings under Americable's revolving credit facility.
ENStar's effective combined income tax rate was 51.5% in 1995 and (32.4%)
in 1994. See Note 7 to the Combined Financial Statements of ENStar.
Equity in earnings of unconsolidated subsidiary increased $195,000 to
approximately $1.2 million in 1995 from approximately $1 million in 1994, which
is a result of higher earnings at CorVel. CorVel's net earnings for the twelve
months ended December 31, 1995 were approximately $7 million, an increase of
approximately $1.5 million or 27% from the previous year.
1994 VERSUS 1993
Revenues at Americable, excluding approximately $4.6 million of revenue in
1993 from its Canadian operations, which were closed in December 1993, increased
$3.3 million, or 9.8%, to $36.9 million. This includes increased revenues of $5
million resulting from higher demand for value-added networking products and
services offset by decreased sales of bulk cable and other connectivity products
of $1.2 million due primarily to lower volume of sales to contractors and
resellers. In addition, sales of cable assemblies decreased by approximately
$500,000 as a result of reduced pricing within modular assembly applications due
to technological changes.
Revenues at Transition increased approximately $1.8 million, or 18% which
includes increased sales of approximately $1.1 million, or 33%, to international
customers and approximately $700,000, or 10% higher sales to domestic customers.
Sales to international customers consisted of 35% and 31% of Transition's
revenues in 1994 and 1993, respectively. Overall, these increases are primarily
a result of new product introductions during the end of 1993 and throughout
1994. During 1994, new product introductions and enhancements accounted for $3.3
million, or 28% of net sales.
Combined gross profit, as a percentage of revenues, decreased to 27.3% in
1994 as compared to 30.3% in 1993. Margins at Americable decreased due to
overall lower pricing resulting from increased competition. Margins at
Transition were unchanged in 1994 from 1993.
ENStar's selling, general and administrative expenses, excluding
restructuring charges, decreased $615,000, or 4.3% to $13.6 million from $14.2
million in 1993. Operating expenses at Americable decreased approximately $1.9
million, which reflects approximately $1.2 million of expenses eliminated
through the closure of its Canadian facilities effected in December 1993, and
$700,000 of other savings realized through a reorganization effected within its
U.S. operations in the third quarter. These decreases were offset by increased
expenses of $1.3 million at Transition due to the addition of sales and
engineering personnel and increased research and development expenses related to
new product introductions and additional administrative and support personnel
needed to support overall growth.
Net interest expense was relatively unchanged between 1994 and 1993.
ENStar's effective combined income tax benefit rate was 32.4% in 1994 and
3.0% in 1993. See Note 7 to the Combined Financial Statements.
Equity in earnings of unconsolidated subsidiary increased $251,000 to
approximately $1 million in 1994 from $745,000 in 1993 which is a result of
higher earnings at CorVel. CorVel's net earnings for 1994 were approximately
$5.5 million, an increase of approximately $1.7 million or 43% from the previous
year.
CAPITAL RESOURCES AND LIQUIDITY
ENStar had net cash from operations of approximately $1.5 million in 1995
versus net cash used in operations of approximately $1.1 million in 1994. The
increase in cash from operations is primarily a result of higher operating
profits at Americable and Transition. Historically, ENStar has experienced
fluctuations in its working capital which is primarily attributable to the
increase receivables and inventories associated with growth in sales and timing
of payments on accounts payable. For 1995 and 1994 cash provided by investing
activities primarily represents collections on notes receivable offset by
capital expenditures.
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Since CorVel's initial public offering in July 1991, ENStar has not had the
use of cash generated by CorVel and its subsidiaries. Also, since its initial
public offering, CorVel has not declared any dividends and has indicated that it
does not anticipate doing so for the foreseeable future. ENStar may from time to
time, depending on market conditions and other factors, sell a portion of its
CorVel holdings.
Americable and Transition maintain a revolving line of credit and term loan
facility which provides borrowings up to $5.5 million due in May 1996.
Borrowings under the revolving credit facility are based on eligible accounts
receivable and inventory with interest at prime plus 1.5%, (10% at December 31,
1995). At December 31, 1995, there were outstanding borrowings of $937,000 under
the revolving credit facility and $1,071,000 under the term note. Management is
currently in the process of negotiating terms of a new credit facility and
expects to obtain available borrowing levels and terms that are comparable with
its existing facility.
Upon completion of the Reorganization, ENStar intends to initiate a
program, similar to that historically maintained by NSU, whereby it will sell
subordinated debentures of various maturities to primarily individual investors.
The debentures are intended to be offered on a continuous basis at interest
rates that change from time to time depending on market conditions. Proceeds
from this program are intended to fund the growth of ENStar's operating
companies along with potential acquisitions and general corporate purposes.
There can be no assurance, however, that ENStar will implement this program or
that any attempted implementation of such a program would be successful.
ENStar expects to be able to fund its working capital and capital
expenditure requirements for 1996 with cash flow from operations along with the
amounts available under the credit facilities of its operating companies. During
1996, ENStar's operating plans call for approximately $1 million in capital
expenditures.
COMPARISON OF RIGHTS OF NSU SHAREHOLDERS
BEFORE AND AFTER THE REORGANIZATION
If the Reorganization is consummated, then after the Effective Time shares
of Common Stock of NSU will be exchanged for shares of Common Stock of New
Michael and ENStar. Like NSU and New Michael, ENStar is a Minnesota corporation
governed by Minnesota law, its Articles of Incorporation and its Bylaws.
Pursuant to the Reorganization, the existing Amended and Restated Bylaws of NSU
will become the Bylaws of New Michael. Such Amended and Restated Bylaws are
substantially the same as the Bylaws of ENStar. The existing Restated Articles
of Incorporation of NSU are referred to herein as the "NSU Articles." A copy of
the Amended and Restated Articles of Incorporation of NSU that will be adopted
if approved by the shareholders of NSU at the NSU Annual Meeting is included as
Exhibit D to Appendix I hereto. See "PROPOSAL NUMBER FOUR: PROPOSAL TO ADOPT AN
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION OF NSU." Such Restated
Articles of Incorporation are referred to herein as the "New Articles." The
Restated Articles of Incorporation of ENStar are referred to herein as the
"ENStar Articles." There are certain differences between the NSU Articles, the
New Articles and the ENStar Articles. The following is a summary of some of the
significant differences.
The NSU Articles provide for authorized Capital Stock of 100,035,000
shares, comprised of 100,000,000 shares of Common Stock with a par value of $.25
per share and 35,000 shares of preferred stock with a par value of $100 per
share. The New Articles will provide for authorized Capital Stock of 50,000,000
shares, comprised of 40,000,000 shares of common stock with a par value of $.01
per share and 10,000,000 undesignated shares. The New Articles will eliminate
the existing designation of the rights and preferences of NSU Common Stock and
NSU Preferred Stock. The Board of Directors will be able to establish by
resolution different classes or series of shares and to fix the rights and
preferences of any New Michael Preferred Stock to be issued. The rights and
preferences of New Michael Common Stock will be as provided under Minnesota law.
The ENStar Articles provide for authorized capital stock of 100,000,000,
comprised of 80,000,000 shares of Common Stock with a par value of $.01 per
share and 20,000,000 shares of Preferred Stock with a par value of $.01 per
share. All shares of ENStar Common Stock are voting shares and are entitled to
one vote per share. The board of directors has the authority to fix the rights
and preferences of preferred shares.
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The NSU Articles mandate that the Board of Directors consist of at least
one but not more than 15 directors. The New Articles will set the minimum number
of directors at three but will not fix a maximum number. It will also permit the
board, in its discretion, to elect honorary, non-voting directors. The ENStar
Articles fix the initial number of directors at five. Thereafter, the number of
directors may be fixed by the board or by the affirmative vote of voting power
of outstanding ENStar Common Stock.
Under the NSU Articles, directors may take written action in lieu of action
at a meeting unless the matter requires shareholder approval. The number of
directors required to approve a written action is an absolute majority. Under
the New Articles, a written action on a matter requiring shareholder approval
must be signed by all directors. Written action on other matters may be taken by
an absolute majority of directors. The ENStar Articles are identical to the New
Articles in this respect.
The NSU Articles do not explicitly require indemnification of directors,
officers or employees. The New Articles require NSU to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, including an action by or in the right
of NSU to the fullest extent permitted under the Minnesota Business Corporation
Act. The ENStar Articles also require such indemnification.
EXECUTIVE OFFICERS AND DIRECTORS OF ENSTAR
EXECUTIVE OFFICERS AND DIRECTORS OF ENSTAR
The following table sets forth certain information as to the persons who
are expected to serve as directors and/or executive officers of ENStar following
the consummation of the Reorganization:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------- --- --------------------------------------------------
<S> <C> <C>
James H. Michael........... 75 Chairman of the Board of Directors
Miles E. Efron............. 69 Director
Richard J. Braun........... 51 Director
Jeffrey J. Michael......... 39 Director, President and Chief Executive Officer
Peter E. Flynn............. 36 Executive Vice President
Thomas S. Wargolet......... 32 Chief Financial Officer and Secretary
Gary M. Doan............... 44 Chairman and Chief Executive Officer, Transition
Gary L. Eizenga............ 49 President and Chief Executive Officer, Americable
</TABLE>
See "ELECTION OF NSU DIRECTORS" for biographical information for Messrs.
Miles E. Efron, James H. Michael, Jeffrey J. Michael, Richard J. Braun and Peter
E. Flynn.
Mr. Thomas Wargolet joined NSU in September 1989 and has been its
Controller since that time. Mr. Wargolet was also the Director of Finance of
Americable from September 1991 until January 1995. Since January 1995, Mr.
Wargolet has been the Vice President of Finance and Operations of Americable.
Prior to joining NSU in 1989, Mr. Wargolet was an Audit Senior with Arthur
Andersen & Co.
Mr. Gary Eizenga joined Americable in September 1989 as Chief Operating
Officer and held that position until January 1991, at which time Mr. Eizenga
became President and Chief Executive Officer of Americable. Prior to joining
Americable, Mr. Eizenga held various positions with American Hospital Supply, a
division of Baxter International.
Mr. Gary Doan founded Transition in 1987 and was its President until
December 1992, at which time he became Chairman and Chief Executive Officer.
Officers of ENStar will be elected annually by the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS OF ENSTAR
ENStar will rely on the Compensation Committee of the Board of Directors
(composed of non-employee members) to recommend the form and amount of
compensation to be paid to ENStar executive officers.
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At the Compensation Committee meeting held on March 5, 1996, base annual
salaries for Messrs. Jeffrey J. Michael, Flynn and Wargolet of $175,000,
$150,000 and $90,000, respectively, were established by the Compensation
Committee and approved by the ENStar Board of Directors, subject to consummation
of the Reorganization. The Compensation Committee also discussed a proposed
bonus program that would provide for the payment of certain cash bonuses to the
ENStar officers based on ENStar's financial performance. Similar to the cash
bonus arrangements that NSU has established from time to time in the past, cash
bonuses for officers of ENStar would be earned based on a structured formula.
Performance targets would be established based on budgeted annual operating
results and cash bonuses would be calculated as a percentage of such officers'
base salary depending on actual financial performance compared to the
performance targets. It is anticipated that such bonuses will range from 0% to
75% of the officers' base salaries, depending upon the officer's position with
the Company. The establishment of the bonus program, the performance targets
relating thereto and the percentage of an officer's salary subject to such bonus
will be determined subsequent to the consummation of the Reorganization.
Messrs. Doan and Eizenga will continue to receive the same base
compensation and participate in the incentive compensation programs at each of
Transition and Americable, respectively. Mr. Doan was paid a base salary of
$120,000 in 1995, and received a bonus of $24,000, based on Transition's 1995
financial performance. Mr. Eizenga was paid a base salary of $162,500 in 1995,
and received a bonus of $65,000, based on Americable's 1995 financial
performance.
The Compensation Committee also approved the granting of non-qualified
stock options under the ENStar 1996 Stock Incentive Plan to each of Messrs.
Jeffrey J. Michael, Flynn and Wargolet at its March 5, 1996 meeting. Such
options provide for the purchase of 28,500, 23,500 and 14,250 shares of ENStar
Common Stock, respectively, at an exercise price per share of $9.00. The options
granted to Messrs. Jeffrey J. Michael, Flynn and Wargolet vest 25% per year over
four years and have a term of ten years. Such options terminate automatically if
the Reorganization is not consummated prior to the first anniversary of the date
of grant. The Compensation Committee currently does not plan to issue stock
options to Messrs. Doan and Eizenga.
The Compensation Committee intends to generally adhere to compensation
policies that reflect the belief that ENStar must attract and retain individuals
of outstanding ability and motivate and reward such individuals for sustained
performance. The Committee also believes the ENStar levels of compensation
should generally be in line with what the executive officers of ENStar were
offered in their capacities as executive officers of NSU. On an ongoing basis,
the type and amount of compensation to be paid by ENStar to its officers will be
entirely discretionary and within the subjective judgment of the Compensation
Committee. It is currently anticipated that none of the officers of ENStar,
other than Messrs. Doan and Eizenga, will have employment agreements with
ENStar.
For information concerning the compensation paid to the executive officers
of NSU for the 1995 fiscal year, see "ELECTION OF NSU DIRECTORS."
COMPENSATION OF DIRECTORS OF ENSTAR
Directors who are not officers or employees of ENStar will receive an
annual retainer of $8,000. Such directors will also receive $300 per meeting for
each meeting of a committee of the Board of Directors that they attend.
Directors incurring travel expenses to attend meetings are reimbursed in full.
ENStar non-employee directors will also be eligible to receive certain stock
options pursuant to the ENStar 1996 Stock Incentive Plan discussed below.
COMMITTEES OF THE BOARD OF ENSTAR
Audit Committee. ENStar has established a standing Audit Committee, which
consists of Mr. Efron and Mr. Braun with Mr. Braun serving as Chairman. The
Audit Committee will review and make recommendations and reports to the Board
with respect to (i) the independent auditors, (ii) the quality and effectiveness
of internal controls, (iii) engagement or discharge of the independent auditors,
(iv) professional services provided by the independent auditors, and (v) the
review and approval of major changes in NSU's accounting principals and
practices.
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Compensation Committee. ENStar has a standing Compensation Committee which
consists of Mr. Efron as Chairman and Mr. Braun. The Compensation Committee will
consider and recommend to the Board salary schedules and other remuneration for
ENStar's executive officers. This committee will also administer the ENStar 1996
Stock Incentive Plan.
1996 STOCK INCENTIVE PLAN
On March 5, 1996, the Board of Directors of ENStar approved and adopted,
and NSU, as sole shareholder of ENStar, approved the ENStar 1996 Stock Incentive
Plan (the "Plan"). The following discussion of the Plan is qualified by
reference to the full text of the Plan which is available upon request to the
Secretary of ENStar.
The purpose of the Plan is to promote the interests of ENStar and its
shareholders by aiding ENStar in attracting and retaining management personnel
capable of assuring the future success of, and non-employee directors capable of
providing strategic direction to ENStar, to offer such personnel and directors
incentives to put forth maximum efforts for the success of ENStar's business, to
afford such personnel and directors an opportunity to acquire a proprietary
interest in ENStar and to align further the interests of such personnel and
directors with ENStar's shareholders.
Administration. With the exception of the provisions applicable to
non-employee directors, which are discussed below, the Plan will be administered
by the Compensation Committee of the Board of Directors of ENStar (the
"Committee"). The Committee has the authority to select the individuals to whom
awards are granted, to determine the types of awards to be granted and the
number of shares of ENStar Common Stock covered by such awards, to set the terms
and conditions of such awards, and to determine whether the payment of any
amounts received under any award shall or may be deferred. The Committee has the
authority to establish rules for the administration of the Plan, and
determinations and interpretations with respect to the Plan are at the sole
discretion of the Committee, whose determinations and interpretations are
binding on all interested parties. The Committee may delegate its powers and
duties under the Plan to one or more officers with respect to persons who are
not subject to Section 16 of the Exchange Act but it may not delegate any of its
powers and duties under the Plan in such a manner as would fail to comply with
any of the requirements of Section 162(m) of the Code.
Terms of the Plan. The Plan permits the granting of a variety of different
types of awards: (i) stock options, including incentive stock options meeting
the requirements of Section 422 of the Code, and stock options that do not meet
such requirements (non-qualified stock options); (ii) stock appreciation rights
(SARs); (iii) restricted stock and restricted stock units; (iv) performance
awards; (v) dividend equivalents; and (vi) other awards valued in whole or in
part by reference to or otherwise based upon ENStar Common Stock ("other
stock-based awards"). Awards may be granted alone, in addition to, in tandem
with, or in substitution for any other award granted under the Plan or any other
plan. Awards may be granted for no cash consideration or for such minimal cash
consideration as may be required by applicable law. Awards may provide that upon
the grant or exercise thereof the holder will receive cash, shares of ENStar
Common Stock or other securities, awards or property, or any combination
thereof, as the Committee shall determine. The exercise price per share under
any stock option, the grant price of any SAR, and the purchase price of any
security which may be purchased under any other stock-based award under Section
6(f) of the Plan may not be less than 100 percent of the fair market value of
ENStar Common Stock on the date of the grant of such option, SAR or right.
Determinations of fair market value under the Plan are made in accordance with
methods and procedures established by the Committee.
Options may be exercised by payment in full of the exercise price, either
in cash or, at the discretion of the Committee, in whole or in part by the
tendering of shares of ENStar Common Stock or other consideration having a fair
market value on the date the option is exercised equal to the exercise price.
The Plan provides that the Committee may grant "reload options," separately or
together with another option, and may establish the terms and conditions of such
reload options. Pursuant to a reload option, the optionee would be granted a new
option when the payment of the exercise price of the option to which such reload
option relates is made by using shares of ENStar Common Stock owned by the
optionee. The new option granted
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upon such exercise would be an option to purchase the number of shares not
exceeding the sum of (i) the number of shares of ENStar Common Stock tendered as
payment upon the exercise of the option to which such reload option relates and
(ii) the number of shares of ENStar Common Stock tendered or withheld as payment
of the amount to be withheld under applicable tax laws in connection with the
exercise of the option to which such reload option relates. Reload options may
be granted with respect to options previously granted under the Plan or any
other stock option plan of ENStar, and may be granted in connection with any
option granted under the Plan or any other such plan at the time of such grant.
Such reload options shall have a per share exercise price equal to the fair
market value as of the date of grant of the new option. Any such reload option
shall be subject to availability of sufficient shares for grant under the Plan.
Shares surrendered as part or all of the exercise price of the option to which
it relates that have been owned by the optionee less than six months will not be
counted for purposes of determining the number of shares that may be purchased
pursuant to a reload option.
The holder of an SAR is entitled to receive the excess of the fair market
value (calculated as of the exercise date or, if the Committee shall so
determine, as of anytime during a specified period before or after the exercise
date) of a specified number of shares over the grant price of the SAR.
Shares of restricted stock and restricted stock units will be subject to
such restrictions as the Committee may impose (including any limitations on the
right to vote or the right to receive dividends), which restrictions may lapse
separately or in combination at such time or times, in such installments or
otherwise as the Committee may determine. Restricted stock may not be
transferred by the holder until the restrictions established by the Committee
lapse. Holders of restricted stock units have the right, subject to any
restrictions imposed by the Committee, to receive shares of ENStar Common Stock
at some future date. Upon termination of the holder's employment during the
restriction period, restricted stock and restricted stock units are forfeited,
unless the Committee determines otherwise.
Performance awards provide the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such goals during such
performance periods as the Committee shall establish. A performance award
granted under the Plan may be denominated or payable in cash, shares of ENStar
Common Stock or restricted stock or restricted stock units, or other securities,
awards or property. Dividend equivalents entitle the holder thereof to receive
payments (in cash, shares or otherwise, as determined by the Committee)
equivalent to the amount of cash dividends with respect to a specified number of
shares. The Committee is also authorized to establish the terms and conditions
of other stock-based awards.
Restrictions on Awards and Transfers. No person who is an employee of
ENStar at the time of grant may be granted any award or awards under the Plan,
the value of which awards are based solely on an increase in the value of the
shares after the date of grant of such awards, of more than 170,000 shares, in
the aggregate, in any calendar year. The foregoing annual limitation
specifically includes the grant of any awards representing "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
No award granted under the Plan may be assigned, transferred, pledged or
otherwise encumbered by the individual to whom it is granted, otherwise than by
will or the laws of descent and distribution, except that the Committee may
permit the designation of a beneficiary. Each award is exercisable, during such
individual's lifetime, only by such individual or, if permissible under
applicable law, by such individual's guardian or legal representative.
The aggregate number of shares of ENStar Common Stock that may be issued
under all awards granted under the Plan is 300,000 (subject to adjustment as
described below). If any shares of ENStar Common Stock subject to any award or
to which an award relates are not purchased or are forfeited, or if any such
award terminates without the delivery of shares, the shares previously set aside
for such awards will be available for future awards under the Plan.
Notwithstanding the foregoing, the total number of shares of ENStar Common Stock
that may be purchased upon exercise of incentive stock options granted under the
Plan may not exceed 300,000, subject to adjustment as described below and in
Section 422 or 424 of the Code or any successor provision. Shares relating to
awards that allow the holder to receive or purchase shares will be counted
against the aggregate number of shares available for granting awards under the
Plan.
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If any dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares of ENStar Common Stock or other
securities of ENStar, issuance of warrants or other rights to purchase shares of
ENStar Common Stock or other securities of ENStar, or other similar corporate
transaction or event affects the shares of ENStar Common Stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan, the
Committee shall, in such manner as it deems equitable, adjust any or all of (i)
the number and type of shares (or other securities or property) which thereafter
may be made the subject of awards, (ii) the number and type of shares (or other
securities or property) subject to outstanding awards and (iii) the exercise
price with respect to any award.
Termination. The Plan terminates on March 5, 2006, and no awards may be
made after that date. Unless otherwise expressly provided in the Plan or an
applicable award agreement, however, any award granted may extend beyond the end
of such period.
Amendment. The Board of Directors may amend, alter or discontinue the Plan
at any time, provided that shareholder approval must be obtained for any such
action that, absent such shareholder approval, would (i) cause Rule 16b-3 under
the Exchange Act to become unavailable with respect to the Plan; (ii) violate
the rules or regulations of the Nasdaq National Market any other securities
exchange applicable to ENStar; or (iii) cause ENStar to be unable, under the
Code, to grant incentive stock options under the Plan. The Committee may correct
any defect, supply any omission, or reconcile any inconsistency in the Plan or
any award agreement in the manner and to the extent it shall deem desirable to
carry the Plan into effect. The Committee may waive any condition of, or rights
of ENStar under any outstanding award, prospectively or retroactively, but the
Committee may not amend or terminate any outstanding award, prospectively or
retroactively, without the consent of the holder or beneficiary of the award.
Federal Tax Consequences. The following is a summary of the principal
federal income tax consequences generally applicable to awards under the Plan.
The grant of an option or SAR is not expected to result in any taxable
income to the recipient. The holder of an incentive stock option generally will
have no taxable income upon exercising the incentive stock option (except that a
liability may arise pursuant to the alternative minimum tax), and ENStar will
not be entitled to a tax deduction when an incentive stock option is exercised.
Upon exercising a non-qualified stock option, the optionee must recognize
ordinary income equal to the excess of the fair market value of the shares of
ENStar Common Stock acquired on the date of exercise over the exercise price,
and ENStar will be entitled at that time to a tax deduction in the same amount.
Upon exercising an SAR, the amount of any cash received and the fair market
value on the exercise date of any shares of ENStar Common Stock received are
taxable to the recipient as ordinary income and deductible by ENStar. The tax
consequence to an optionee upon a disposition of shares acquired through the
exercise of an option or SAR will depend on how long the shares have been held
and upon whether such shares were acquired by exercising an incentive stock
option or by exercising a non-qualified stock option or SAR. Generally, there
will be no tax consequence to ENStar in connection with disposition of shares
acquired under an option, except that ENStar may be entitled to a tax deduction
in the case of a disposition of shares acquired under an incentive stock option
before the applicable incentive stock option holding periods set forth in the
Code have been satisfied.
With respect to other awards granted under the Plan that are payable either
in cash or shares of ENStar Common Stock that are either transferable or not
subject to substantial risk of forfeiture, the holder of such an award must
recognize ordinary income equal to the excess of (i) the cash or the fair market
value of the shares of ENStar Common Stock received (determined as of the date
of such receipt) over (ii) the amount (if any) paid for such shares of ENStar
Common Stock by the holder of the award, and ENStar will be entitled at that
time to a deduction for the same amount. With respect to an award that is
payable in shares of ENStar Common Stock that are restricted as to
transferability and subject to substantial risk of forfeiture, unless a special
election is made pursuant to the Code, the holder of the award must recognize
ordinary income equal to the excess of (i) the fair market value of the shares
of ENStar Common Stock received (determined as of the first time the shares
become transferable or not subject to substantial risk of forfeiture,
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whichever occurs earlier) over (ii) the amount (if any) paid for such shares of
ENStar Common Stock by the holder, and ENStar will be entitled at that time to a
tax deduction in the same amount.
Special rules may apply in the case of individuals subject to Section 16 of
the Exchange Act. In particular, unless a special election is made pursuant to
the Code, shares received pursuant to the exercise of a stock option or SAR may
be treated as restricted as to transferability and subject to a substantial risk
of forfeiture for a period up to six months after the date of exercise.
Accordingly, the amount of any ordinary income recognized, and the amount of
ENStar's tax deduction, are determined as of the end of such period.
Under the Plan, the Committee may permit participants (other than
non-employee directors) receiving or exercising awards, subject to the
discretion of the Committee and upon such terms and conditions as it may impose,
to surrender shares of ENStar Common Stock (either shares received upon the
receipt or exercise of the award or shares previously owned by the optionee) or
other property to ENStar to satisfy federal and state tax obligations. In
addition, the Committee may grant, subject to its discretion and such rules as
it may adopt, a bonus to a participant (other than a person subject to Section
16 of the Exchange Act) in order to provide funds to pay all or a portion of
federal and state taxes due as a result of the receipt or exercise of (or lapse
of restrictions relating to) an award. The amount of any such bonus will be
taxable to the participant as ordinary income, and ENStar will have a
corresponding deduction equal to such amount (subject to the usual rules
concerning reasonable compensation).
Eligible Employees. Any employee, officer, consultant or independent
contractor of ENStar and its affiliates selected by the Committee is eligible to
receive an award under the Plan. Other than as described elsewhere herein, the
amount, type and recipients of awards under the Plan have not yet been
determined.
Non-employee Directors. Each non-employee director of ENStar, upon his or
her initial election as a director, shall be granted an option to purchase 4,000
shares of ENStar Common Stock. Commencing with the 1997 Annual Meeting, each
non-employee director of ENStar also shall be granted an option to purchase
1,000 shares of ENStar Common Stock on the date of the annual meeting of
shareholders each year if the director will remain in office immediately
following such meeting. The exercise price of each option shall be equal to 100
percent of the fair market value per share on the date of grant. Such options
shall be non-qualified stock options, shall become exercisable six months after
the date of grant, and shall terminate on the fifth anniversary of the date of
grant. Such options shall also terminate three months following the date upon
which the participant ceases to be a director of ENStar, except that if the
participant shall cease to be a director by reason of willful and material
misconduct, the option shall terminate as of the date of such misconduct, and if
the participant shall die while a director of ENStar and he or she shall not
have fully exercised the option, the option may be exercised at any time within
twelve months after the participant's death, in accordance with its terms by the
participant's legal representatives, but only to the extent of the full number
of shares the participant was entitled to purchase under the option on the date
of death.
In connection with their election as directors and the adoption of the
Plan, each of Messrs. James H. Michael, Miles E. Efron and Richard J. Braun were
granted an option to purchase 4,000 shares of ENStar Common Stock. The exercise
price of such options is at $9.00 per share. The options are expressly subject
to the consummation of the Reorganization.
EIZENGA AGREEMENT
Gary L. Eizenga is a party to a Stock Option Agreement, dated September 27,
1989, pursuant to which he was granted an option to purchase from NSU up to 500
shares of the common stock of Americable, or approximately 2.5% of the
outstanding shares of Americable, subject to adjustment in the event of a
recapitalization, stock-split or stock dividend, at a price per share equal to
the book value per share as of September 30, 1989, which was $873.12. Such
option is exercisable through October 1, 1999, except that in the event of
termination of Mr. Eizenga's employment, the option may be exercised only for a
period of 90 days after such termination. The option may terminate as of an
earlier date in the event of dissolution or liquidation of Americable. Mr.
Eizenga and NSU are currently discussing a possible restructuring of Mr.
Eizenga's option in connection with the Reorganization.
77
<PAGE> 86
DOAN AGREEMENT
Gary M. Doan is a party to an employment agreement with Transition, the
original term of which expired December 31, 1994, but which has been
automatically extended by the parties for successive one-year periods since that
date. As extended, the agreement provides for an annual base salary of $120,000
in connection with Mr. Doan's services rendered for the benefit of Transition.
The agreement entitles Mr. Doan to participate in executive compensation
programs established by Transition's Board of Directors. Mr. Doan is also
eligible to receive an annual cash bonus to be determined based on Transition's
financial performance. Mr. Doan received a bonus of $24,000 based on
Transition's performance during 1995.
The agreement may be terminated by either party at the end of an extension
period upon at least 60 days written notice. If Transition terminates Mr. Doan's
employment without sufficient notice or without cause, Mr. Doan is entitled to
be paid the base salary then in effect for a period of six months.
In connection with Gary M. Doan's employment with Transition as of May 1,
1992, Mr. Doan was granted an option to purchase up to 4.5% of the Common Stock
of Transition at a price equal to the fair market value on May 1, 1992.
Approximately two thirds of the award was exercisable by May 1994. The remainder
is exercisable December 31, 2001. The option expires April 30, 2002, except that
in the event Mr. Doan's employment is earlier terminated for whatever reason,
the portion of the award that is exercisable or which will become exercisable
within 90 days may be exercised until the earlier of 90 days after such
termination or May 31, 2002. Any shares purchased by Mr. Doan are subject to
repurchase by NSU if Mr. Doan ceases to be employed by Transition.
PROPOSAL NUMBER FOUR:
PROPOSAL TO ADOPT AN AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION OF NSU
On March 5, 1996, the Board of Directors of NSU unanimously adopted a
resolution approving amendments to and a restatement of NSU's existing Restated
Articles of Incorporation, subject to the consummation of the Reorganization.
The Board further resolved that the amendments be submitted to shareholders of
NSU for their approval, subject to the consummation of the Reorganization. A
copy of the Amended and Restated Articles of Incorporation is included in
Appendix I as Exhibit D to the Reorganization Agreement. Such Amended and
Restated Articles of Incorporation are referred to herein as the "New Articles."
If approved by the shareholders of NSU, the New Articles would be filed with the
Minnesota Secretary of State on the Effective Date.
Michael has requested the changes to the Restated Articles of Incorporation
of NSU as described below, as a condition to the Merger, in order to ensure that
the Articles of New Michael will better conform to the existing Certificate of
Incorporation of Michael. The Board of Directors of NSU believes that the
amendments are appropriate in light of the Reorganization.
Under the New Articles, NSU's name will be changed to Michael Foods, Inc.
Article IV of the existing Restated Articles of Incorporation of NSU would
be amended by decreasing the number of shares of authorized Capital Stock of NSU
from 100,035,000 shares, comprised of 100,000,000 shares of Common Stock with a
par value of $.25 per share and 35,000 shares of preferred stock with a par
value of $100 per share, to 50,000,000 shares comprised of 40,000,000 shares of
common stock with a par value of $.01 per share and 10,000,000 undesignated
shares. Each share of New Michael Common Stock will be entitled to one vote on
all matters presented to the shareholders for a vote. Article IV of the New
Articles would eliminate the current designation of the rights and preferences
of NSU Common Stock and NSU Preferred Stock. The Board of Directors will be able
to establish by resolution different classes or series of shares and to fix the
rights and preferences of any New Michael Preferred Stock to be issued. The
rights and preferences of New Michael Common Stock will be as provided under
Minnesota law.
The current Restated Articles of Incorporation of NSU mandate that the
Board of Directors consist of at least one but not more than 15 directors.
Article VI of the New Articles will set the minimum number of
78
<PAGE> 87
directors at three but will not fix a maximum number. It will also permit the
board, in its discretion, to elect honorary, non-voting directors. In addition,
Article VI of the New Articles will explicitly state that the Board of Directors
has all the powers conferred upon directors under the Minnesota Business
Corporation Act.
Under the existing Restated Articles of Incorporation of NSU, an absolute
majority of directors may take written action in lieu of action at a meeting,
except when the matter to be acted on requires shareholder approval. When an
action taken by the board must be approved by shareholders, however, a written
action must be approved by an absolute majority of directors. Under the New
Articles, a written action on a matter requiring shareholder approval must be
signed by all directors. Other matters may be acted upon by written action
signed by an absolute majority of the directors.
The New Articles will also require New Michael to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, including an action by or in the right
of NSU to the fullest extent permitted under the Minnesota Business Corporation
Act. The existing Restated Articles of Incorporation of NSU do not explicitly
require such indemnification.
If approved, the amendments to and restatement of the Restated Articles of
Incorporation of NSU will, subject to the consummation of the Reorganization,
become effective upon filing with the Minnesota Secretary of State, which would
take place on the Effective Date. The Board of Directors recommends a vote FOR
approval of the New Articles. Under Minnesota law the affirmative vote of a
majority of the outstanding shares of NSU Common Stock is necessary to approve
the New Articles.
PROPOSAL NUMBER FIVE:
ELECTION OF NSU DIRECTORS
The Board of Directors of NSU has recommended that the number of Directors
to be elected for the coming year be set at six. The Board of Directors
recommends that shareholders elect the nominees named below as Directors of NSU
for the ensuing year and until their successors are elected and qualified.
Unless otherwise indicated thereon, the persons named in the enclosed form of
proxy intend to vote FOR the election of the six nominees listed below. The
affirmative vote of a majority of the shares of NSU Common Stock present (or
represented by proxy) and entitled to vote at the 1996 Annual Meeting is
required to elect each of the nominees as Directors for the ensuing year or
until their successors are elected and have qualified. All of the nominees are
members of the present Board of Directors. If for any reason any nominee shall
be unavailable for election to the Board of Directors, votes will be cast
pursuant to authority granted by the enclosed proxy for such other candidate or
candidates as may be nominated by the Board of Directors. The Board of Directors
has no reason to believe that any of the nominees listed below will be unable to
serve if elected to office. If the Reorganization is consummated, NSU and
Michael currently contemplate that the members of the Board of Directors of NSU
other than Mr. Efron and Mr. Michael will resign as of the Effective Date and
Mr. Efron and Mr. Michael will name certain Michael-designated individuals to
the Board of Directors of New Michael. See "THE REORGANIZATION AGREEMENT -- New
Michael Management Following the Reorganization."
79
<PAGE> 88
NOMINEES
The following table sets forth certain information regarding the nominees
for election as Directors, including the amount and percentage of outstanding
shares of NSU Common Stock beneficially owned by such persons as of February 1,
1996.
<TABLE>
<CAPTION>
SHARES OF
FIRST COMMON
BECAME A STOCK
DIRECTOR BENEFICIALLY PERCENT
NAME BIOGRAPHICAL INFORMATION OF NSU OWNED OF CLASS
- ---------------------- ------------------------------------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Miles E. Efron........ Chairman of the Board since July 1991 and 1968 434,900(2) 4.42%
Age 69 a senior advisor to NSU. Mr. Efron was
President and Chief Executive Officer from
October 1988 to December 31, 1990, and was
Senior Vice President of NSU from 1985
until October of 1988. Mr. Efron also is a
director of Michael.
James H. Michael...... Chairman of the Board until July 1991. Mr. 1968 3,084,400(1) 32.65%
Age 75 Michael is Chairman of the Board of
Michael, and is the father of Jeffrey J.
Michael, NSU's President and Chief
Executive Officer.
Jeffrey J. Michael.... President and Chief Executive Officer 1987 2,600,700(1) 27.53%
Age 39 since December 1990. Mr. Michael served as
Vice President-Finance from April 1989 to
December 1990. Prior to April 1989, Mr.
Michael was employed by NSU in various
capacities. Jeffrey J. Michael is the son
of James H. Michael. Mr. Michael is also a
director of Michael and CorVel.
Fred E. Stout......... Mr. Stout is the retired President and 1988 5,250(2) 0.06%
Age 75 Chief Executive Officer of Superior Water,
Light and Power Company. Mr. Stout also
served as a director of NSU from 1984 to
1986.
Peter E. Flynn........ Executive Vice President, Chief Financial 1991 134,500(2) 1.40%
Age 36 Officer and Secretary of NSU since
December 1990. In December 1992, he also
became the President and Chief Operating
Officer of Transition. Mr. Flynn served as
Treasurer of NSU from April 1989 to
December 1990. Prior to joining NSU in
1990, Mr. Flynn was an Audit Manager with
Arthur Andersen & Co. Mr. Flynn was
elected to the Board of Directors in July
1991, and also serves as a director of
CorVel.
</TABLE>
80
<PAGE> 89
<TABLE>
<CAPTION>
SHARES OF
FIRST COMMON
BECAME A STOCK
DIRECTOR BENEFICIALLY PERCENT
NAME BIOGRAPHICAL INFORMATION OF NSU OWNED OF CLASS
- ---------------------- ------------------------------------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Richard J. Braun...... Mr. Braun currently serves as Chief 1994 None 0.00%
Age 51 Executive Officer of Silicon Biology,
Inc., a technology company specializing in
generic classification technology, and as
a principal of Excelsior Investment Group
Ltd. Mr. Braun was the Managing Director
of Headwaters Capital Management L.L.C.
during 1995. From 1992-1994, Mr. Braun
served as Chief Operating Officer and a
Director of Employee Benefit Plans, Inc.,
and from 1989-1991 was Executive Vice
President, Chief Operating Officer and a
Director of Reich and Tang L.P., a
publicly held investment advisor and
broker-dealer. From 1988-1989, Mr. Braun
served as President and Chief Executive
Officer of Super Cycle, Inc., a former
subsidiary of NSU. Mr. Braun is a director
of RSI Systems, Inc.
</TABLE>
- -------------------------
(1) The 4J2R1C Limited Partnership ("4J2R1C", formerly The Michael Partnership)
owns 2,826,494 shares of NSU Common Stock. Mr. James H. Michael is the
managing general partner and a limited partner of 4J2R1C and by reason of
his status as the managing general partner is deemed to beneficially own all
shares held by 4J2R1C. Mr. James H. Michael exercises sole voting and
dispositive power with respect to the shares held by 4J2R1C. Mr. Jeffrey J.
Michael is the general partner of 3J2R Limited Partnership ("3J2R"), which
owns 2,597,000 shares of NSU Common Stock. By reason of his status as 3J2R's
general partner, Mr. Jeffrey J. Michael is deemed to beneficially own the
shares of NSU Common Stock held by 3J2R. Mr. Jeffrey J. Michael exercises
sole voting and dispositive power with respect to the shares held by 3J2R.
(2) Shares shown as beneficially owned include, in the case of Mr. Efron,
395,000 shares of NSU Common Stock not outstanding but which may be acquired
within 60 days through the exercise of stock options, in the case of Mr.
Stout, 2,500 shares not outstanding, but which may be acquired within 60
days through the exercise of stock options, and in the case of Mr. Flynn,
134,500 shares of NSU Common Stock not outstanding but which may be acquired
within 60 days through the exercise of stock options.
CERTAIN INFORMATION REGARDING THE BOARD OF DIRECTORS
During the year ended December 31, 1995, the Board of Directors of NSU held
ten meetings.
During the year ended December 31, 1995, the members of NSU's Audit
Committee were Messrs. Flynn, Stout and Braun. The Audit Committee reviews and
makes recommendations to the Board of Directors with respect to designated
financial and accounting matters. The Audit Committee held one meeting during
the year ended December 31, 1995.
For the year ended December 31, 1995, the members of NSU's Executive
Committee were Messrs. Michael, Michael and Efron. The Executive Committee
reviews and makes recommendations to the Board of Directors regarding certain
employee benefit matters. The Executive Committee held one meeting during the
year ended December 31, 1995.
NSU has no nominating committee.
81
<PAGE> 90
DIRECTOR COMPENSATION
During 1995, Directors of NSU, other than Messrs. Jeffrey J. Michael and
Flynn, who are also executive officers of NSU, received a monthly retainer of
$600 for serving as members of NSU's Board of Directors. Directors incurring
travel expenses to attend meetings are reimbursed in full. Members of the Audit
Committee, other than Mr. Flynn, each receive an additional $300 for each
committee meeting held. The total of all such payments for the year ended
December 31, 1995 was $30,000.
REPORT OF THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
General. The Executive Committee of the Board of Directors (the
"Committee") establishes the specific compensation for each of NSU's named
executive officers. The Committee is made up of three members, James H. Michael,
Miles E. Efron and Jeffrey J. Michael. With respect to compensation matters
concerning Mr. Jeffrey J. Michael, NSU's President and Chief Executive Officer,
Mr. Jeffrey J. Michael is excluded from Committee deliberations. After
consideration of the Committee recommendations, the full Board of Directors
reviews and approves the salaries of each named executive officer. The Committee
is responsible for administering all other elements of executive compensation,
including annual incentive awards and stock option grants.
Executive Compensation Philosophy and Goals. During 1991 NSU initiated a
strategic process to strengthen its balance sheet and focus its management
resources on its key holdings. In connection with this process NSU sold several
of its smaller businesses and substantially cut corporate overhead. As a result,
NSU has only two executive officers, Jeffrey J. Michael, President and Chief
Executive Officer, and Peter E. Flynn, Executive Vice President, Chief Financial
Officer and Secretary. The Committee believes that NSU's success depends to a
significant extent on the continuing efforts and dedication of Messrs. Jeffrey
J. Michael and Flynn. The executive compensation arrangements are designed to
motivate and reward these executives for attaining the financial and strategic
objectives essential to NSU's success and continued growth, while at the same
time allowing NSU to retain high-caliber executives. The key components of NSU's
compensation program are base salary, cash bonuses and, to a lesser extent,
stock option awards.
Base Salaries. While the Committee has not conducted formal independent
salary comparisons in determining individual executive compensation, the
Committee believes that base salaries should be moderate, yet competitive in
relation to salaries commanded by persons in similar positions. The base salary
for each named executive officer is reviewed annually and is set on the basis of
personal performance, the relative importance of the functions the officer
performs, the scope of the officer's ongoing responsibilities and the estimated
salary levels in effect at comparable companies for comparable positions. The
weight given to each of these factors varies between individuals.
Cash Bonuses. Annual cash bonuses are designed to reward executives with
operating responsibility for personal contributions to the success of NSU and
generally are earned under a structured formula. Historically, individual
performance targets have been established based on an annual operating budget
which is submitted for review and approval by the Chief Executive Officer of NSU
after consultation with the Committee. After the end of the calendar year, the
Chief Executive Officer has evaluated actual financial performance against the
individual performance targets. In the case of Mr. Flynn, who had day-to-day
responsibility for the operation of Transition during 1995 (in addition to his
responsibilities as an executive officer of NSU), the Committee departed from
this practice in 1995 because of the change in Mr. Flynn's responsibilities on
April 1, 1995, which are described below in this report. In 1993, the Committee
discontinued payment of discretionary bonuses for officers without direct
operating responsibility. Accordingly, Mr. Michael has not received a cash bonus
since 1992.
Stock Options. Incentive stock options are periodically granted to motivate
executives to achieve positive long-term financial results, thereby enhancing
shareholder value. Due to the limited corporate staff, NSU does not have formal
policies or formulas for determining the timing, amount or particular vesting
schedules for stock option awards. Furthermore, NSU's stock performance is
significantly affected by changes in the value of its equity holdings in Michael
and, to a lesser extent, the value of its CorVel holdings. Although North Star
has representatives on the boards of directors of both Michael and CorVel, NSU
does not have direct
82
<PAGE> 91
management control over the operations of either business. Accordingly, the
Committee believes that NSU's stock performance is often not the best indicator
of the performance of NSU's management team, and, as a result, has not granted
significant options to NSU's executives. Further, because of the substantial
beneficial holdings of Mr. Michael's family in NSU's Common Stock, the Committee
believes Mr. Michael's interests in stock performance already parallel those of
NSU's other shareholders. As a result, the Committee historically has not
granted any stock options to Mr. Michael. During 1995, there were no stock
options granted to any executive officer.
1995 Executive Compensation. Mr. Jeffrey J. Michael, as Chief Executive
Officer of North Star, has overall responsibility for the strategic direction of
NSU and for the performance of NSU's wholly owned operating companies. Mr.
Michael was elected to his present position in December 1990 and is not a party
to an employment agreement. During 1994 and 1995, Mr. Michael was paid a base
salary of $235,000. In establishing Mr. Michael's base salary, the Committee
took into account that Mr. Michael does not participate in NSU's incentive cash
bonus program or employee stock option plan. Mr. Michael's base salary was
continued at $235,000 in 1996.
As described in more detail below, Mr. Flynn entered into an employment
agreement with NSU and Transition effective April 1, 1993, in connection with
his assumption of the duties of President of Transition, which agreement was
modified effective as of April 1, 1995. The modification to his agreement with
NSU and Transition provided that Mr. Flynn devote more of his time to NSU
matters while continuing to oversee the day-to-day operations of Transition.
During 1995, approximately 24% of Mr. Flynn's base salary was paid by Transition
and related to his work as President of that company. The remainder of his base
salary in 1995 was paid by NSU recognizing his greater involvement in NSU
matters. In 1995, Mr. Flynn's base salary remained relatively unchanged from his
base salary in 1994. Also, for 1995, Mr. Flynn was awarded a bonus of $25,000
based on the performance of Transition through the first quarter of 1995, and a
discretionary bonus of $75,000, based on his performance in executing NSU's
strategic plans.
This report of the Committee shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy
Statement/Prospectus into any filing under the Securities Act or under the
Exchange, except to the extent that NSU specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
JAMES H. MICHAEL
MILES E. EFRON
JEFFREY J. MICHAEL
The Members of the Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jeffrey J. Michael, James H. Michael and Miles E. Efron served on the
Executive Committee of NSU for the past fiscal year. The Executive Committee
determines compensation levels for NSU's executive officers. Each of Messrs.
James H. Michael and Efron was formerly an executive officer of NSU, and James
H. Michael has on occasion borrowed funds from NSU. As of February 21, 1996, Mr.
Michael owed NSU approximately $157,872. The maximum amount of such
indebtedness, including accrued but unpaid interest, owed to NSU by Mr. Michael
during 1995 was approximately $428,084. The currently outstanding indebtedness
is evidenced by an unsecured note which provides for quarterly interest payments
and an annual principal payment of $50,000. The unsecured note accrues interest
at the rate of one percent over the reference rate of First Bank, National
Association (9.25% at February 21, 1996).
Effective September 1, 1985, the Board of Directors established a formal
policy governing future loans to officers. The policy permits unsecured loans to
officers of up to $50,000. Loans in excess of $50,000 must be approved in
advance by the Board of Directors and must be secured by readily marketable
negotiable securities. Loans to officers will bear interest at one percent over
the prevailing prime rate of interest and must mature within five years.
Interest is to be paid quarterly. In addition to the foregoing, an officer may
borrow annually an amount not exceeding 10 percent of annual compensation. These
loans are without interest and are payable on termination of employment. Mr.
James H. Michael's loans from NSU predate this policy.
83
<PAGE> 92
Although Jeffrey J. Michael, NSU's President and Chief Executive Officer,
served on NSU's Executive Committee during 1993 and 1994, as previously
indicated, he did not participate in any decisions regarding his own
compensation as an executive officer.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by NSU to or on behalf of Jeffrey J. Michael, NSU's
President and Chief Executive Officer, and Peter E. Flynn, NSU's only other
executive officer, for the fiscal years ended December 31, 1993, 1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS COMPENSATION(2)(3)(4)
- ---------------------------------- ---- --------- -------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Jeffrey J. Michael................ 1995 $ 235,000 $ -- -- $ 6,703
President and Chief Executive 1994 235,000 -- -- 6,703
Officer 1993 188,200 -- -- 6,580
Peter E. Flynn.................... 1995 170,255 100,000 -- 5,679
Executive Vice President, Chief 1994 173,816 45,000 -- 5,679
Financial Officer and Secretary 1993 173,011 97,500 -- 5,556
</TABLE>
- -------------------------
(1) In 1993, Messrs. Michael and Flynn earned $7,200, and $6,600, respectively,
in their capacities as Directors of NSU. Such fees are included in each
officer's calculation of annual salary amounts. NSU discontinued the payment
of such fees to Messrs. Michael and Flynn commencing January 1, 1994.
(2) Represents amounts contributed by NSU for the benefit of each of Messrs.
Michael and Flynn pursuant to NSU's 401(k) Plan.
(3) Neither of the named executive officers held or received any awards of
restricted shares.
(4) Includes life and disability insurance premiums paid by NSU for the benefit
of each of Messrs. Michael and Flynn.
STOCK OPTIONS, AWARDS, EXERCISES AND HOLDINGS
During 1995, there were no stock options for NSU Common Stock granted to
any executive officer.
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of options
during the last fiscal year and unexercised options held as of the end of the
fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT FY-END
SHARES ACQUIRED ---------------------------- ----------------------------
NAME ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Jeffrey J. Michael................ 0 0 0 $ 0 $ 0
Peter E. Flynn.................... 0 134,500 0 $ 166,875 $ 0
</TABLE>
84
<PAGE> 93
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Effective December 31, 1990, Mr. Efron's employment agreement with NSU was
terminated, and he resigned as President and Chief Executive Officer of NSU. Mr.
Efron continues as an employee of NSU, providing advisory and consulting
services. Pursuant to an agreement with NSU, he continues to receive annual
compensation of $50,000 through December 1996 for his consulting and advisory
services to NSU and is eligible to participate in other fringe benefits
established by NSU for its executive officers.
Mr. Flynn is a party to an employment agreement with NSU and Transition,
which terminates December 31, 1997, subject to annual extensions thereafter at
the option of the parties. Mr. Flynn's employment agreement was modified
effective April 1, 1995. As modified, the agreement provides for an annual base
salary of $136,000 for services rendered for the benefit of NSU, plus annual
compensation of $42,500 in connection with Mr. Flynn's duties as President and
Chief Operating Officer of Transition. The agreement entitles Mr. Flynn to
participate in other fringe benefits established by NSU for its executive
officers. In addition, Mr. Flynn was awarded a bonus of $25,000 based on the
performance of Transition through the first quarter of 1995, and Mr. Flynn was
made eligible for a discretionary bonus in 1996 based upon his performance in
1995 in executing NSU's strategic plans. Under the terms of the agreement, the
amount of the discretionary bonus was limited to $75,000, as determined by NSU's
Board of Directors. The Board subsequently determined that Mr. Flynn should be
awarded the maximum amount of the discretionary bonus.
Upon the voluntary termination of his employment with NSU, Mr. Flynn is
entitled to receive a single lump sum payment equal to his then current base
salary plus $25,000. If Mr. Flynn dies, he becomes disabled and unable to
continue his employment, his employment is terminated by NSU for any reason, or
he voluntarily terminates his employment following certain actions by NSU
constituting constructive termination, Mr. Flynn is entitled to receive a single
lump sum payment equal to two times his then current base salary plus $25,000.
If Mr. Flynn's employment is terminated due to a change in control of NSU, Mr.
Flynn is entitled to receive a single lump sum payment of $297,000. Also, if Mr.
Flynn is terminated by NSU, all of his then outstanding options immediately
become vested.
85
<PAGE> 94
STOCK PRICE PERFORMANCE GRAPH AND TABLE
The following graph and table compare the yearly percentage change in the
cumulative total shareholder return on NSU's Common Stock during the five year
period ended December 31, 1995, with the cumulative total return on each of the
S&P 500 Index, the S&P Foods Index, the S&P Healthcare Composite Index and the
S&P Computer Systems Index. Each of the component S&P indices represent each of
NSU's separate lines of business. The comparison assumes $100 was invested on
December 31, 1990 in NSU's Common Stock and in each of the foregoing indices and
assumes reinvestment of dividends.
<TABLE>
<CAPTION>
Measurement Period North Star Health Care- Computer
(Fiscal Year Covered) Universal S&P 500 Foods Composite Systems
<S> <C> <C> <C> <C> <C>
DEC 90 100 100 100 100 100
DEC 91 132.3 130.5 145.9 154.00 88.9
DEC 92 80.7 140.4 145.5 128.9 65.2
DEC 93 62.9 154.6 133.6 118.1 67.7
DEC 94 58.1 156.6 149.3 133.6 87.4
DEC 95 100.0 215.5 190.4 210.9 116.4
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than ten percent
(10%) of NSU's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Commission. Executive officers, directors, and
greater than ten percent (10%) beneficial owners are required by Commission
regulations to furnish NSU with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to NSU and
written representations from the executive officers and directors of NSU, NSU
believes that its executive officers, directors and 10% shareholders complied
with all Section 16(a) filing requirements applicable to them, except that
Messrs. James H. Michael and Jeffrey J. Michael each reported one transaction
late for the year ending December 31, 1995.
86
<PAGE> 95
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of NSU Common Stock of NSU as of March 1, 1996, by each
shareholder who is known by NSU to own beneficially more than 5 percent of the
outstanding Common Stock of NSU, and by all officers and Directors of NSU as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------------ -------------------- --------
<S> <C> <C>
James H. Michael.................................................. 3,084,400(1) 32.65%
142 North Mississippi River Blvd.
St. Paul, MN 55104
Jeffrey J. Michael................................................ 2,600,700(2) 27.53%
5745 Seven Oaks Court
Minnetonka, Minnesota 55345
Heartland Advisors, Inc........................................... 994,300(3) 10.52%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
All officers and directors as a group (6 persons)................. 6,259,750(4) 62.72%
</TABLE>
- -------------------------
(1) Includes 2,826,494 shares of Common Stock held by 4J2R1C Limited
Partnership, as to which Mr. James H. Michael, as managing general partner,
exercises sole voting and dispositive power.
(2) Includes 2,597,000 shares of Common Stock held by 3J2R Limited Partnership
as to which Mr. Jeffrey J. Michael, as general partner, exercises sole
voting and dispositive power.
(3) Based on information in a Schedule 13D Report delivered to NSU showing
information as of February 9, 1996 and indicating that Heartland Advisors,
Inc. is an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, and that Heartland Advisors, Inc. has sole voting
power over 872,000 of such shares and sole dispositive power over all such
shares.
(4) Shares shown as beneficially owned include 532,000 shares not outstanding,
but which may be acquired within 60 days through the exercise of stock
options by all officers and Directors as a group.
AUDITORS
The Board of Directors of NSU intends to appoint Grant Thornton LLP as
independent auditors for NSU for the year ending December 31, 1996, if the
Reorganization is not consummated. Grant Thornton LLP audited the financial
statements of NSU for the year ended December 31, 1995. Representatives of Grant
Thornton LLP will be present at the annual meeting and will be given an
opportunity to make a statement if they desire to do so and to respond to
appropriate questions raised at the meeting.
LEGAL MATTERS
The validity of the ENStar Common Stock to be issued in connection with the
Distribution and the validity of the shares of New Michael Common Stock to be
issued in connection with the Merger will be passed upon for ENStar and NSU,
respectively, by Dorsey & Whitney LLP.
87
<PAGE> 96
EXPERTS
The consolidated financial statements and schedule of Michael as of
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995 appearing in Michael's Annual Report on Form 10-K have been
audited by Grant Thornton LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements and schedule of NSU as of December
31, 1995 and 1994, and for each of the three years in the period ended December
31, 1995 appearing in NSU's Annual Report on Form 10-K have been audited by
Grant Thornton LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of said firm as experts in auditing and
accounting.
The combined financial statements and schedule of ENStar (an operating unit
of NSU) as of December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995 appearing herein have been audited by Grant
Thornton LLP, independent auditors, as set forth in their reports included
herein and are included in reliance upon such reports given upon the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of CorVel as of March 31, 1995 and
1994 and for each of the three years in the period ended March 31, 1995
appearing in NSU's Annual Report on Form 10-K have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
SHAREHOLDER PROPOSALS FOR 1997 MEETING OF SHAREHOLDERS
In the event that the Reorganization is not consummated and NSU conducts an
annual meeting in 1997, any proposal by a shareholder to be presented at such
annual meeting must be received at NSU's principal executive offices at 5353
Wayzata Boulevard, 610 Park National Bank Building, Minneapolis, Minnesota
55416, not later than December , 1996. Any such proposal must be in the form
required under the rules and regulations promulgated by the Securities and
Exchange Commission.
OTHER MATTERS
The Board of Directors of NSU knows of no other matters that are intended
to be brought before the Annual Meeting. If other matters, of which the Board of
Directors is not aware, are presented for action, it is the intention of the
persons named in the enclosed form of proxy to vote on such matters in their
sole discretion.
88
<PAGE> 97
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF ENSTAR PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Combined Statements of Operating Unit Income for the
three years ended December 31, 1995, 1994 and 1993................................. F-2
Combined Statements of Operating Unit Assets and Liabilities
as of December 31, 1995 and 1994................................................... F-3
Combined Statements of Operating Unit Equity for the three years
ended December 31, 1995, 1994 and 1993............................................. F-4
Combined Statements of Operating Unit Cash Flows for the
three years ended December 31, 1995, 1994 and 1993................................. F-5
Notes to Combined Financial Statements............................................... F-6
Report of Independent Certified Public Accountants................................... F-12
</TABLE>
F-1
<PAGE> 98
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT INCOME
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues......................................................... $54,891 $47,193 $46,756
Operating and product costs...................................... 39,525 34,328 32,599
------- ------- -------
Gross profit................................................... 15,366 12,865 14,157
Selling, general and administrative expenses..................... 14,333 13,567 14,182
Restructuring charges............................................ -- -- 1,953
------- ------- -------
Operating income (loss)........................................ 1,033 (702) (1,978)
Interest expense................................................. (247) (348) (361)
------- ------- -------
Income (loss) before taxes and equity in earnings of
unconsolidated subsidiary................................... 786 (1,050) (2,339)
Income tax provision (benefit)................................... 405 (340) (70)
------- ------- -------
Income (loss) before equity in earnings of unconsolidated
subsidiary.................................................. 381 (710) (2,269)
Equity in earnings of unconsolidated subsidiary.................. 1,191 996 745
------- ------- -------
Net income (loss)................................................ $ 1,572 $ 286 $(1,524)
======= ======= =======
Pro forma income (loss) per share................................ $ 0.49 $ 0.09 $ (0.48)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-2
<PAGE> 99
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT ASSETS AND LIABILITIES
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................... $ 246 $ 74
Accounts receivable, net................................................ 8,784 7,516
Inventories............................................................. 6,631 6,083
Prepaid expenses and other.............................................. 274 237
Net assets held for sale................................................ 1,032 714
------- -------
Total current assets............................................... 16,967 14,624
Property and equipment, net............................................... 1,453 1,586
Goodwill.................................................................. 4,960 5,121
Investment in unconsolidated subsidiary................................... 11,682 9,627
Other..................................................................... 189 1,285
------- -------
$35,251 $32,243
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to bank................................................... $ 937 $ --
Current maturities of long-term debt.................................... 1,088 428
Accounts payable........................................................ 5,239 4,232
Accrued expenses
Payroll related...................................................... 799 488
Other................................................................ 4,364 3,125
------- -------
Total current liabilities.......................................... 12,427 8,273
Long-term debt, less current maturities................................... 158 3,179
Deferred income taxes..................................................... 2,972 2,615
Commitments............................................................... -- --
Operating unit equity..................................................... 19,694 18,176
------- -------
$35,251 $32,243
======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-3
<PAGE> 100
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1992....................................................... $17,263
Net loss......................................................................... (1,524)
Effect of equity transactions of unconsolidated subsidiary....................... 152
Effect of restructuring charges.................................................. 318
Translation adjustment........................................................... (198)
Additional capital invested...................................................... 1,024
-------
Balance at December 31, 1993....................................................... 17,035
Net income....................................................................... 286
Effect of equity transactions of unconsolidated subsidiary....................... 73
Additional capital invested...................................................... 782
-------
Balance at December 31, 1994....................................................... 18,176
Net income....................................................................... 1,572
Effect of equity transactions of unconsolidated subsidiary....................... 42
Constructive dividend............................................................ (96)
-------
Balance at December 31, 1995....................................................... $19,694
=======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-4
<PAGE> 101
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................................... $ 1,572 $ 286 $ (1,524)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in earnings of unconsolidated subsidiary.......... (1,191) (996) (745)
Non-cash restructuring charges........................... -- -- 1,567
Depreciation and amortization............................ 837 848 715
Deferred income taxes.................................... (465) (200) (460)
Translation adjustment................................... -- -- (198)
Changes in operating assets and liabilities, net of
effects of restructuring charges
Accounts receivable.................................... (1,268) (1,980) 819
Inventories............................................ (548) 420 (406)
Accounts payable, accrued expenses and other........... 2,520 510 162
-------- -------- --------
Net cash provided by (used in) operating activities...... 1,457 (1,112) (70)
-------- -------- --------
Cash flows from investing activities
Capital expenditures..................................... (543) (541) (1,089)
Other.................................................... 778 720 532
-------- -------- --------
Net cash provided by (used in) investing activities...... 235 179 (557)
-------- -------- --------
Cash flows from financing activities
Proceeds from long-term debt............................. 56,073 48,868 23,267
Payments on long-term debt............................... (57,497) (48,704) (23,693)
Additional capital invested (constructive dividends)..... (96) 782 1,024
-------- -------- --------
Net cash provided by (used in) financing activities...... (1,520) 946 598
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 172 13 (29)
Cash and cash equivalents at beginning of year.............. 74 61 90
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 246 $ 74 $ 61
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-5
<PAGE> 102
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BUSINESS
ENStar (the "Operating Unit" or the "Unit") is an Operating Unit of North
Star Universal, Inc. ("North Star"). The Operating Unit is comprised of
Americable, Inc. ("Americable"), Transition Networks, Inc., ("Transition") and
Eagle Engineering and Manufacturing, Inc. ("Eagle," which is included in net
assets held for sale), along with an equity investment in CorVel Corporation
("CorVel") and certain other assets. At December 31, 1995, North Star owned a
35% ownership interest in CorVel and following the sale of 350,000 shares in
January 1996, its ownership was reduced to 27%. The accompanying financial
statements reflect a 27% ownership interest for all periods presented. The
Operating Unit's investment in CorVel is accounted for as an unconsolidated
subsidiary using the equity method of accounting.
Americable is a provider of connectivity and networking products and
services. Transition designs, manufactures and markets connectivity devices used
in network applications.
Pursuant to the terms of an agreement between North Star and Michael Foods,
Inc. ("Michael Foods"), an unconsolidated subsidiary of North Star will be
merged with and into Michael Foods and the net assets owned by the Unit will be
transferred to a newly formed corporation ENStar Inc. Under the terms of the
agreement, the shares of ENStar Inc. will be declared payable in a tax free
dividend to the North Star shareholders of record prior to the effective date of
such merger and distributed immediately following the merger. The transaction is
subject to the receipt of a favorable ruling from the Internal Revenue Service
that the transactions are tax free to the shareholders of Michael Foods and
North Star, the approval of both companies shareholders and other closing
conditions.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION The accompanying combined financial statements have
been prepared from the books and records of the entities and investments
described in Note 1. The combined financial statements include an allocation of
general and administrative costs incurred by North Star in the management of the
operating companies, investment holding and other assets of the Unit. Management
believes these allocations are reasonable and present the operations of the Unit
as though it was operated on a stand alone basis. Additionally, operating unit
equity includes the historical equity of each entity, other net assets
contributed to the Unit and intercompany payables owed to North Star. The annual
net advances between the Unit and North Star are considered additional capital
invested from, or constructive dividends to, North Star. Accordingly, the
accompanying combined financial statements may not necessarily be indicative of
the results that would have been obtained if the Unit had been operated as a
stand alone entity.
PRINCIPLES OF COMBINATION Significant inter-unit balances and transactions
have been eliminated.
CASH AND CASH EQUIVALENTS The Unit considers its highly liquid temporary
investments with original maturities of three months or less to be cash
equivalents. The carrying value of cash and cash equivalents approximate fair
value because of the short-term maturity of these investments.
INVENTORIES Inventories are stated at the lower of average cost (determined
on a first-in, first-out basis) or market. At December 31, inventories consist
of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Work in process and finished goods........................... $4,092 $2,864
Purchased parts.............................................. 2,539 3,219
------ ------
$6,631 $6,083
====== ======
</TABLE>
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost.
Depreciation and amortization for financial reporting purposes are provided on
the straight-line method over the estimated useful lives of the
F-6
<PAGE> 103
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
respective assets which are generally three to five years. At December 31,
property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Leasehold improvements....................................... $ 304 $ 276
Office and computer equipment................................ 3,720 3,262
------ ------
4,024 3,538
Less -- accumulated depreciation and amortization............ 2,571 1,952
------ ------
$1,453 $1,586
====== ======
</TABLE>
GOODWILL Goodwill is amortized on a straight-line basis over periods not
exceeding 40 years. Accumulated amortization was $1,584,000 at December 31, 1995
and $1,423,000 at December 31, 1994. The Unit maintains separate financial
records for each of its acquired entities and evaluates its goodwill annually to
determine potential impairment by comparing the carrying value to the
undiscounted future cash flows of the related assets. The Unit modifies the life
or adjusts the value of a subsidiary's goodwill if an impairment is identified.
See Note 3 for an impairment identified during 1993.
REVENUE RECOGNITION The Unit recognizes revenue from product sales at the
time product is shipped to a customer. Service revenue is recognized at the time
service is provided or ratably over the contractual service period.
PRO FORMA INCOME (LOSS) PER SHARE Pro forma income (loss) per share was
computed based on the weighted average number of shares of North Star common
stock outstanding (9,650,000, 9,704,000 and 9,438,000 in 1995, 1994 and 1993)
after giving effect to the assumed exercise of North Star's outstanding stock
options for North Star common stock, except when the effects are antidilutive.
This weighted average number of shares was adjusted to reflect the distribution
of ENStar Inc. common stock to North Star shareholders whereby one share of
ENStar Inc. common stock will be issued to each holder of three shares of North
Star common stock. The adjusted weighted average shares outstanding, used to
compute pro forma income (loss) per share, was 3,217,000, 3,235,000 and
3,146,000 in 1995, 1994 and 1993.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Unit increased its
investment in its unconsolidated subsidiary by $70,000, $122,000 and $254,000
and operating unit equity by $42,000, $73,000 and $152,000 during 1995, 1994 and
1993, respectively, as a result of equity transactions of CorVel. In addition,
the Unit had cash payments for interest of $247,000 in 1995, $348,000 in 1994,
and $361,000 in 1993.
RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards
Board has issued two accounting standards which the Unit is required to adopt
January 1, 1996. The first statement establishes guidance on when and how to
measure impairment of long-lived assets and certain identifiable intangibles and
how to value long-lived assets to be disposed of. The second standard
establishes accounting and reporting for the impact of the fair value of
stock-based compensation plans and permits the Unit to select the fair value
based method of accounting for employee stock options or the intrinsic value
method. Upon completion of the distribution described in Note 1, management
intends to adopt the intrinsic value method of accounting and reporting for
stock-based compensation plans. Management believes the adoption of these new
accounting standards will not have a material effect on the Unit's combined
financial statements.
USE OF ESTIMATES In the preparation of the Unit's combined financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and related revenues and
expenses. Actual results could differ from the estimates used by management.
F-7
<PAGE> 104
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- RESTRUCTURING CHARGES
In December 1993, Americable implemented a restructuring plan involving the
closure of its Canadian facilities, operated by Adanac Cable, Ltd., and
consolidation of its Canadian sales and customer support activities within its
U.S. operations. This plan was completed in 1994. In connection with this
consolidation, Americable recorded a restructuring charge of approximately $1.9
million in 1993. This charge includes approximately $600,000 for the write-off
of goodwill and other noncurrent assets, $700,000 for the reassessment of the
carrying value of inventory and receivables, and $600,000 for lease and
severance obligations and other related expenses.
NOTE 4 -- INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The Unit's unconsolidated subsidiary consists of its investment in CorVel,
a health care services company. CorVel has a fiscal year end of March 31. The
following is summarized unaudited balance sheet information of CorVel as of
December 31, 1995. The summarized unaudited income statement information for
CorVel is for the twelve month period ended December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Current assets..................................................... $ 36,739
Noncurrent assets.................................................. 15,514
Current liabilities................................................ 8,696
Noncurrent liabilities............................................. 765
Revenues........................................................... 106,814
Gross profit....................................................... 19,640
Net income......................................................... 7,038
</TABLE>
At December 31, 1995, the combined Unit equity includes approximately $3.7
million of unremitted earnings related to the Unit's investment in CorVel. At
December 31, 1995, the fair value of the Operating Unit's investment in CorVel,
based on the closing market price, was approximately $46.7 million.
NOTE 5 -- NET ASSETS HELD FOR SALE
In March 1991, the Unit announced its intention to sell its remaining
non-computer related manufacturing company, Eagle. The Unit has recorded the net
assets related to this subsidiary in the balance sheet under the caption "Net
Assets Held For Sale." Operating results of this subsidiary are not material.
NOTE 6 -- NOTES PAYABLE AND LONG-TERM DEBT
Americable and Transition maintain a revolving line of credit and term loan
facility which provides borrowings up to $5.5 million due in May 1996.
Borrowings under this facility are based on eligible accounts receivable and
inventory with interest at prime plus 1.5% (10% at December 31, 1995). Amounts
outstanding under the revolving line of credit at December 31, 1995 are
classified within notes payable to the bank. The term loan bears interest at
10.665% and is payable in monthly principal installments of $36,000 with a final
installment of $893,000 due in May 1996. The credit agreement includes certain
restrictive covenants including minimum net worth requirements, limitations on
additional indebtedness and minimum interest coverage. At December 31, 1995,
Americable and Transition were in compliance with the covenants of this
F-8
<PAGE> 105
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
agreement. At December 31, the carrying value of long-term debt, which
approximates fair value, consists of (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Revolving line of credit..................................... $ -- $2,107
Term note payable............................................ 1,071 1,500
Other........................................................ 175 --
------ ------
1,246 3,607
Less current maturities...................................... 1,088 428
------ ------
$ 158 $3,179
====== ======
</TABLE>
Aggregate minimum annual principal payments of long-term debt at December
31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
------------------------------------------------------------
<S> <C>
1996........................................................ $1,088
1997........................................................ 18
1998........................................................ 20
1999........................................................ 22
2000........................................................ 25
2001 and thereafter......................................... 73
------
$1,246
======
</TABLE>
NOTE 7 -- INCOME TAXES
The activity of the Unit has been included in the income tax return of
North Star. For financial reporting purposes, the Unit has been allocated a
provision for income taxes in an amount generally equivalent to the provision
that would have resulted had the Unit filed separate income tax returns. The
provision for combined income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
Current
Federal............................................... $740 $(120) $ 330
State................................................. 130 (20) 60
---- ----- -----
870 (140) 390
---- ----- -----
Deferred:
Federal............................................... (405) (175) (400)
State................................................. (60) (25) (60)
---- ----- -----
(465) (200) (460)
---- ----- -----
$405 $(340) $ (70)
==== ===== =====
</TABLE>
F-9
<PAGE> 106
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of income taxes at the federal statutory
rate to the effective rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
----------------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
Federal statutory rate............................... 34.0% (34.0)% (34.0)%
State income taxes................................... 8.9 (4.3) --
Losses producing no current benefit.................. -- -- 28.4
Goodwill amortization................................ 7.0 5.1 2.3
Other................................................ 1.6 0.8 0.3
---- ----- -----
51.5% (32.4)% (3.0)%
==== ===== =====
</TABLE>
To the extent the Unit's financial reporting basis in its investment in
unconsolidated subsidiaries exceeds its tax basis, and is not expected to be
realized in a tax-free manner, the Unit records a deferred income tax liability.
At December 31, 1995, the deferred tax liability includes the initial tax effect
of $1.8 million for the difference in the financial reporting and tax basis of
the Unit's investment in CorVel following its initial public offering along with
income taxes recorded on the equity in earnings of CorVel of $794,000 in 1995,
$664,000 in 1994, and $497,000 in 1993.
The tax effects of the cumulative temporary differences resulting in the
net deferred tax liability at December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Investment in CorVel....................................... $(4,339) $(3,517)
Accrued expenses not deductible until paid................. 1,729 1,338
Other...................................................... (362) (436)
------- -------
$(2,972) $(2,615)
======= =======
</TABLE>
NOTE 8 -- COMMITMENTS
The Unit leases certain equipment and facilities under operating leases.
Minimum rental payments under such leases which expire at various dates through
2008 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
------------------------------------------
<S> <C>
1996................................. $621
1997................................. 423
1998................................. 344
1999................................. 351
2000................................. 249
2001 and thereafter.................. 223
</TABLE>
Certain of the leases provide for payment of taxes and other expenses.
Total rent expense on all leases including month-to-month leases was $849,000 in
1995, $823,000 in 1994, and $830,000 in 1993.
NOTE 9 -- EMPLOYEE RETIREMENT PLAN
North Star maintains an incentive savings plan for its employees and
employees including those of the Unit. Full-time employees that meet certain
requirements are eligible to participate in the plan. Contributions are made
annually, primarily at the discretion of North Star's Board of Directors.
Contributions of $144,000, $138,000, $126,000, were charged to operations in the
years ended December 31, 1995, 1994 and 1993.
F-10
<PAGE> 107
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- RELATED PARTY TRANSACTION
The Unit has an unsecured note receivable from North Star's majority
shareholder and former chairman of the board of $257,872 at December 31, 1995.
The note bears interest at the Unit's principal bank's reference rate plus 1%
(9.5% at December 31, 1995). A principal payment of $150,000 was made in
December 1995.
NOTE 11 -- GEOGRAPHIC AREA AND BUSINESS SEGMENT INFORMATION
Prior to 1994, the Unit's foreign operations included Americable's Canadian
subsidiary, Adanac Cable, Ltd. which was closed in December 1993 as discussed in
Note 3. In 1993, foreign operations consisted of revenues of $4.6 million and
operating loss of $195,000.
The Unit, through Transition, has international export sales throughout the
world. Substantially all of the export sales are denominated in U.S. dollars.
Revenues classified by major geographic area are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from unaffiliated customers in the
United States.................................... $49,668 $43,020 $43,616
Europe........................................... 3,363 2,737 2,230
Other............................................ 1,860 1,436 910
------- ------- -------
$54,891 $47,193 $46,756
======= ======= =======
</TABLE>
F-11
<PAGE> 108
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of North Star Universal, Inc.
We have audited the accompanying combined statements of operating unit
assets and liabilities of ENStar ("the Unit"), (an operating unit of North Star
Universal, Inc.), as of December 31, 1995 and 1994, and the related combined
statements of operating unit net income, operating unit equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Unit's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined operating unit assets and
liabilities of ENStar as of December 31, 1995 and 1994, and the combined results
of their operations and their combined cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Minneapolis, Minnesota
February 15, 1996
F-12
<PAGE> 109
APPENDIX I
-------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
MICHAEL FOODS, INC.,
NORTH STAR UNIVERSAL, INC.
AND
NSU MERGER CO.
-------------------------
-------------------------
DECEMBER 21, 1995
-------------------------
<PAGE> 110
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
ARTICLE 1. DEFINITIONS AND PRELIMINARY TRANSACTIONS............................ I-1
1.1 Definitions......................................................... I-1
1.2 Distribution of Spinco Common Stock................................. I-5
1.3 Reverse Stock Split................................................. I-5
1.4 No Fractional Shares................................................ I-5
1.5 NSU Dissenters' Rights.............................................. I-5
1.6 NSU Stock Option Plans.............................................. I-5
ARTICLE 2. MERGER.............................................................. I-6
2.1 Effect of Merger.................................................... I-6
2.2 Effect on Michael Capital Stock and Merger Sub Capital Stock........ I-6
2.3 Rights of Holders of Michael Capital Stock.......................... I-7
2.4 Procedure for Exchange of Stock..................................... I-7
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MICHAEL........................... I-10
3.1 Organization and Qualification...................................... I-10
3.2 Authority Relative to this Agreement; Non-Contravention............. I-10
3.3 Capitalization...................................................... I-10
3.4 Exchange Act Reports................................................ I-11
3.5 Subsidiaries........................................................ I-11
3.6 Litigation.......................................................... I-11
3.7 No Brokers or Finders............................................... I-11
3.8 Prospectus/Proxy Statement.......................................... I-11
3.9 Disclosure.......................................................... I-12
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF NSU............................... I-12
4.1 Organization and Qualification...................................... I-12
4.2 Authority Relative to this Agreement; Non-Contravention............. I-12
4.3 Capitalization...................................................... I-13
4.4 Exchange Act Reports................................................ I-13
4.5 Subsidiaries........................................................ I-13
4.6 Absence of Certain Developments..................................... I-13
4.7 Litigation.......................................................... I-13
4.8 No Brokers or Finders............................................... I-14
4.9 Prospectus/Proxy Statement.......................................... I-14
4.10 Validity of the Surviving Corporation Common Stock.................. I-14
4.11 Ownership of Michael Common Stock................................... I-14
4.12 Liabilities......................................................... I-14
4.13 Disclosure.......................................................... I-14
ARTICLE 5. CONDUCT OF BUSINESS PENDING THE MERGER.............................. I-15
5.1 Conduct of Business by NSU.......................................... I-15
5.2 Conduct of Business by Michael...................................... I-15
ARTICLE 6. ADDITIONAL COVENANTS AND AGREEMENTS................................. I-15
6.1 Governmental Filings................................................ I-15
6.2 Expenses............................................................ I-15
6.3 Access to Information; Confidentiality.............................. I-16
6.4 Registration Statement.............................................. I-16
6.5 Accounting and Tax Treatment........................................ I-17
6.6 Michael Stock Plans................................................. I-17
6.7 Press Releases...................................................... I-17
6.8 Directors and Officers Insurance.................................... I-17
</TABLE>
i
<PAGE> 111
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
6.9 Securities Reports.................................................. I-18
6.10 Stock Listing....................................................... I-18
6.11 Shareholder Approvals............................................... I-18
6.12 No Solicitation..................................................... I-18
6.13 Failure to Fulfill Conditions....................................... I-18
6.14 Tax Ruling or Opinion............................................... I-19
6.15 Resignations and Election of Directors.............................. I-19
6.16 Orderly Disposition and Registration Rights Agreement............... I-19
6.17 Shareholder Vote.................................................... I-19
6.18 Filing of Reports Necessary for use of Rule 145..................... I-19
6.19 Notification of Certain Matters..................................... I-19
6.20 Notification of Anticipated NSU Net Indebtedness.................... I-20
6.21 Distribution Agreement.............................................. I-20
ARTICLE 7. CONDITIONS.......................................................... I-20
7.1 Conditions to Obligations of Each Party............................. I-20
7.2 Additional Conditions to Obligation of NSU.......................... I-21
7.3 Additional Conditions to Obligation of Michael...................... I-22
ARTICLE 8. TERMINATION, AMENDMENT AND WAIVER................................... I-23
8.1 Termination......................................................... I-23
8.2 Effect of Termination............................................... I-23
8.3 Amendment........................................................... I-24
8.4 Waiver.............................................................. I-24
ARTICLE 9. GENERAL PROVISIONS.................................................. I-24
9.1 Public Statements................................................... I-24
9.2 Notices............................................................. I-24
9.3 Interpretation...................................................... I-25
9.4 Severability........................................................ I-25
9.5 Miscellaneous....................................................... I-25
9.6 Non-Survival of Representations, Warranties and Covenants........... I-26
9.7 Schedules........................................................... I-26
9.8 Counterparts........................................................ I-26
9.9 Third Party Beneficiaries........................................... I-26
ARTICLE 10. DISPUTE RESOLUTION.................................................. I-26
10.1 Mediation and Binding Arbitration................................... I-26
10.2 Initiation.......................................................... I-26
10.3 Submission to Mediation............................................. I-26
10.4 Selection of Mediator............................................... I-26
10.5 Mediation and Arbitration........................................... I-26
10.6 Selection of Arbitrators............................................ I-27
10.7 Cost of Arbitration................................................. I-27
EXHIBITS
Exhibit A -- Discount Factor.................................................. I-29
Exhibit B -- Form of Certificate of Merger
Exhibit C -- Form of Distribution Agreement
Exhibit D -- Form of New Articles
Exhibit E -- Form of Orderly Disposition and Registration Rights Agreement
</TABLE>
ii
<PAGE> 112
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated December 21, 1995, by and
between MICHAEL FOODS, INC., a Delaware corporation ("Michael"), NORTH STAR
UNIVERSAL, INC., a Minnesota corporation ("NSU"), and NSU MERGER CO., a Delaware
corporation and a wholly-owned subsidiary of NSU ("Merger Sub")
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Michael and NSU have determined that it
is in the best interests of Michael and NSU and their respective shareholders to
consummate the merger (the "Merger") of Merger Sub, a newly-formed subsidiary of
NSU, with and into Michael with Michael as the surviving corporation;
WHEREAS, Michael and NSU desire that the Merger be made on the terms and
subject to the conditions set forth in this Agreement and qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended;
WHEREAS, as a condition of the Merger, Michael requires that NSU distribute
and NSU is willing to distribute immediately after the Merger to NSU
shareholders of record prior to the Merger, all of the capital stock of a newly
incorporated wholly owned subsidiary, to which, prior to the Merger, all of the
assets of NSU will be assigned, contributed or otherwise transferred other than
(i) the shares of Merger Sub, (ii) the shares of Michael Common Stock (defined
below) owned by NSU on the date hereof, (iii) cash held by NSU, and (iv) certain
other assets as the parties mutually agree, and that NSU be released from, or
mutually acceptable adequate provisions be made for, all liabilities and
obligations other than as mutually agreed by the parties, so that, after giving
effect to the Merger and such distribution, the business and operations of NSU
after the Merger will be the business and operations of Michael;
WHEREAS, the distribution contemplated by the previous WHEREAS clause will
be made in accordance with the Distribution Agreement (as defined below);
WHEREAS, as a further condition of the Merger, Michael requires and NSU is
willing to reduce the number of outstanding shares of NSU Common Stock (as
defined below) to an amount equal to the number of shares of Michael Common
Stock owned by NSU less a number of shares determined by formula to reflect the
amount of the liabilities retained by NSU at the time of the Merger net of the
cash retained by NSU at the time of the Merger; and
WHEREAS, Michael is requiring such reduction in the number of outstanding
shares of NSU Common Stock so that each share of Michael Common Stock will be
exchangeable for one share of the Surviving Corporation Common Stock (as defined
below) after the Merger.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND PRELIMINARY TRANSACTIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
Affiliate: as defined in Regulation 12b-2 promulgated under the Exchange
Act, as such Regulation is in effect on the date hereof.
Anticipated NSU Net Indebtedness: as defined in Section 6.20.
Average Price of Michael Common Stock: the average closing sales price per
share of Michael Common Stock reported on the NASDAQ-NMS as published by The
Wall Street Journal during the twenty (20) trading days ending on the third
trading day immediately preceding the Effective Date.
I-1
<PAGE> 113
Certificate of Merger: the Certificate of Merger in substantially the form
of Exhibit B hereto.
Code: the Internal Revenue Code of 1986, as amended, or any successor
legislation.
Continuing Options: as defined in Section 2.2(b).
Credit Agreement: the Credit Agreement between NSU and First Bank National
Association, a national banking association, including any amendments thereto,
and any replacement credit agreement or facility.
Discount Factor: the factor determined in accordance with the table in
Exhibit A based on the amount of the NSU Net Assumed Liabilities at the
Effective Time.
Dissenting Shares: as defined in Section 1.5.
Dissenting Shares Holdback: shall be an amount mutually agreed upon by NSU
and Michael based on the number of Dissenting Shares for which such Liability
has not been paid by the Effective Date plus a reasonable amount to assure that
the Surviving Corporation will not incur any Liability with respect to such
Dissenting Shares in excess of the amount mutually agreed by Michael and NSU.
Distribution: the distribution, on the Distribution Date, of all of the
outstanding shares of Spinco Common Stock by NSU to the holders of record of NSU
Common Stock on the Distribution Record Date, which distribution shall be deemed
to have been effected by NSU upon delivery by NSU to the distribution agent of
an instruction directing the distribution agent to effect the distribution of
the Spinco Common Stock in accordance with Section 3.03 of the Distribution
Agreement and such distribution shall not be effected nor deemed to have been
effected until after the Effective Time.
Distribution Agreement: the Distribution Agreement between NSU and Spinco
in substantially the form of Exhibit C hereto.
Distribution Date: the Effective Date; provided, however, that the
Distribution shall not occur until after the Effective Time of the Merger.
Distribution Record Date: the close of business on the date to be
determined by the NSU Board as the record date for the Distribution, which date
shall be prior to the Effective Date.
DGCL: the Delaware General Corporation Law, as amended.
Effective Date: as defined in Section 2.1(d).
Effective Time: as defined in Section 2.1(d).
Exchange Act: the Securities Exchange Act of 1934, as amended.
Exchange Agent: as defined in Section 2.4(a).
Exchange Fund: as defined in Section 2.4(c).
Exchange Ratio: as defined in Section 2.2(a).
GAAP: generally accepted accounting principles.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
IRS: the Internal Revenue Service.
Liabilities: any and all debts, liabilities, accounts payable, Taxes,
claims and other obligations, absolute or contingent, mature or not mature,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising (unless otherwise specified in this Agreement), including all costs and
expenses relating thereto, and including, without limitation, those debts,
liabilities and obligations arising under any law, rule, regulation, or any
actual or threatened action, suit, proceeding or investigation by or before any
court, any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal, any order or consent decrees of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
I-2
<PAGE> 114
Material Adverse Effect: with respect to an entity means any condition,
event, change or occurrence that has had or may reasonably be expected to have a
material adverse effect on the business, operations, results of operations or
financial condition of such entity on a consolidated basis.
MBCA: Minnesota Business Corporation Act, as amended.
Merger: as defined in the preambles of this Agreement.
Michael 10-K Reports: as defined in Section 3.4.
Michael 10-Q Reports: as defined in Section 3.4.
Michael Board: the Board of Directors of Michael.
Michael Common Stock: the common stock, par value $.01 per share, of
Michael.
Michael Stock Plans: as defined in Section 2.2(b).
Michael Subsidiary: as defined in Section 3.5.
NASDAQ-NMS: the NASDAQ National Market System.
New Articles: the amended and restated articles of incorporation of NSU in
substantially the form of Exhibit D hereto which will be effective on the
Effective Date.
NSU 10-K Reports: as defined in Section 4.4.
NSU 10-Q Reports: as defined in Section 4.4.
NSU Assumed Liabilities: the NSU Indebtedness and the NSU Retained
Liabilities.
NSU Board: the Board of Directors of NSU prior to the Merger Effective
Date.
NSU Common Stock: the Common Stock, par value $1.00 per share, of NSU,
prior to the Merger Effective Date.
NSU Indebtedness: indebtedness (principal and accrued interest) represented
by NSU's outstanding subordinated debentures and subordinated extendable and
fixed time certificates and the NSU indebtedness (principal and accrued
interest) owing pursuant to the Credit Agreement.
NSU Net Assumed Liabilities: an amount equal to (i) the NSU Indebtedness as
of the Effective Time plus the amount of the Dissenting Shares Holdback, less
(ii) the amount of cash included in the NSU Retained Assets as of the Effective
Time, provided that such amount shall be no less than $25,000,000 and no more
than $38,000,000.
NSU Options: as defined in Section 1.6.
NSU Stock Option Plans: as defined in Section 1.6.
NSU Subsidiary: as defined in Section 4.5.
NSU Retained Assets: the following assets:
(i) such amount of cash as NSU may, in its sole discretion, determine
to hold at the Effective Time;
(ii) 7,354,950 shares of Michael Common Stock owned by NSU as of the
date of this Agreement;
(iii) the capital stock of Merger Sub;
(iv) the rights of NSU under this Agreement, the Distribution
Agreement and the Orderly Disposition and Registration Rights Agreement;
and
(v) any and all net operating loss carryforwards and other Tax
attributes properly allocable to NSU following the Effective Date in
accordance with the relevant provisions of the Code.
I-3
<PAGE> 115
NSU Retained Liabilities: the following Liabilities:
(i) any Liability arising from any NSU shareholders who have
effectively dissented from the NSU shareholder action in connection with
the Merger and the Distribution in accordance with Sections 471 and 473 of
the MBCA;
(ii) any Liability of NSU (Surviving Corporation) under the
Distribution Agreement arising after the Effective Date;
(iii) any Liability of NSU (Surviving Corporation) under this
Agreement after the Effective Date; and
(iv) any Liability of NSU (Surviving Corporation) under the Orderly
Distribution and Registration Rights Agreement arising after the Effective
Date.
NSU Transferred Assets: all assets of NSU other than the NSU Retained
Assets.
NSU Transferred Liabilities: all Liabilities of NSU (i) arising at any time
prior to the Effective Date other than the NSU Assumed Liabilities, or (ii)
arising as a result of the Distribution (other than any liability of NSU for
Taxes resulting from a breach of Section 2.07 of the Distribution Agreement by
NSU (Surviving Corporation) after the Effective Date).
Orderly Disposition and Registration Rights Agreement: the Orderly
Disposition and Registration Rights Agreement dated the date hereof between NSU
and certain shareholders of NSU in the form of Exhibit E hereto.
Prospectus/Proxy Statement: as defined in Section 6.4.
Registration Statement: as defined in Section 6.4.
Repurchased Michael Common Stock: the number of shares of Michael Common
Stock owned by NSU equal to (i) the NSU Net Assumed Liabilities, divided by (ii)
the product of the Discount Factor multiplied by the Average Price of Michael
Common Stock.
Requisite Michael Shareholder Vote: as defined in Section 3.2.
Requisite NSU Shareholder Vote: as defined in Section 4.2.
Reverse Stock Split: as defined in Section 1.3.
SEC: the Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
Spinco: the wholly owned subsidiary of NSU to which NSU will transfer the
NSU Transferred Assets and the NSU Transferred Liabilities.
Spinco Common Stock: the Common Stock, par value $.01 per share, of Spinco.
Subsidiary: with respect to any entity shall mean each corporation in which
such entity owns directly or indirectly fifty percent or more of the voting
securities of such corporation and shall, unless otherwise indicated, be deemed
to refer to both direct and indirect subsidiaries of such entity.
Surviving Corporation: as defined in Article 2.
Surviving Corporation Common Stock: the common stock, par value $.01 per
share, of the Surviving Corporation.
Taxes: any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, environmental taxes, customs duties, capital
stock, franchise, employees' income withholding, foreign or domestic
withholding, social security, unemployment, disability, workers' compensation,
employment-related insurance, real property, personal property, sales, use,
transfer, value added, alternative or add-on minimum or other governmental tax,
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<PAGE> 116
fee, assessment or charge of any kind whatsoever including any interest,
penalties or additions to any Tax or additional amounts in respect of the
foregoing.
1.2 Distribution of Spinco Common Stock.
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 8.1 and the conditions set forth in Article 7 shall have
been fulfilled or waived,
(i) NSU shall, prior to the Effective Date, contribute to Spinco all
of the NSU Transferred Assets in accordance with the Distribution
Agreement;
(ii) NSU shall use all reasonable efforts to obtain releases from,
cause Spinco to assume, indemnify NSU and Merger Sub from or, in accordance
with the terms of the Distribution Agreement, otherwise provide for the
payment or recovery by NSU or Merger Sub with respect to the NSU
Transferred Liabilities; and
(iii) NSU shall declare the Distribution to NSU shareholders of record
on the Distribution Record Date which shall be payable conditioned only
upon the Merger on the Distribution Date.
(b) The Distribution will be effected in accordance with the terms of the
Distribution Agreement, which will also govern the relative rights and
obligations of Spinco and the Surviving Corporation after the Merger. NSU shall
cause the Distribution to be conducted in accordance with all applicable federal
and state securities laws.
1.3 Reverse Stock Split. Provided that this Agreement shall not have been
terminated in accordance with Section 8.1 and the conditions set forth in
Article 7 have been fulfilled or waived, NSU shall authorize and effect a
combination of the outstanding NSU Common Stock in the form of a reverse stock
split (the "Reverse Stock Split") effective on the Effective Date and
immediately prior to the Effective Time so that, immediately prior to the
Effective Time and after giving effect to the Reverse Stock Split, the aggregate
number of shares of NSU Common Stock outstanding on a fully diluted basis
(excluding any Dissenting Shares) is equal to: (i) the number of shares of
Michael Common Stock then owned directly or beneficially by NSU, less (ii) the
number of shares of Repurchased Michael Common Stock.
1.4 No Fractional Shares. No fractional shares of the Surviving Corporation
Common Stock, and no certificates representing such fractional shares, shall be
issued in connection with the Reverse Stock Split. In lieu of any fractional
share, the Surviving Corporation shall pay to each holder of NSU Common Stock
subject to the Reverse Stock Split who otherwise would be entitled to receive a
fractional share of NSU Common Stock as a result of the Reverse Stock Split an
amount of cash (without interest) determined by multiplying (a) the Average
Price of Michael Common Stock times (b) the fractional share interest to which
such holder would otherwise be entitled. The payment for fractional shares shall
be made upon the surrender for exchange of certificates representing NSU Common
Stock which were subject to the Reverse Stock Split.
1.5 NSU Dissenters' Rights. Notwithstanding anything in this Agreement to
the contrary, shares of NSU Common Stock that are issued and outstanding on the
record date for the meeting of NSU shareholders referred to in Section 6.11 and
which are held by NSU shareholders who shall have effectively dissented from the
NSU shareholder action with respect to the Distribution in accordance with the
MBCA (the "Dissenting Shares") shall not be converted into shares of the
Surviving Corporation, shall not be subject to the Reverse Stock Split and shall
not be entitled to the Distribution, unless and until such holder shall have
failed to perfect or shall have effectively withdrawn or lost its, his or her
right to appraisal and payment under the MBCA. The Dissenting Shares shall have
only those rights granted to dissenting shares under the MBCA.
1.6 NSU Stock Option Plans. NSU shall cause all options (the "NSU Options")
outstanding under the 1986 Incentive Stock Option Plan of NSU, the 1986
Non-Qualified Stock Option Plan of NSU, the 1988 Nonqualified Stock Option Plan
of NSU (the "NSU Stock Option Plans") or otherwise disclosed in Schedule 4.3 to
be cancelled or exercised prior to the Effective Time. At or prior to the
Effective Time, all of the NSU Stock Option Plans shall be terminated.
I-5
<PAGE> 117
ARTICLE 2
MERGER
Subject to the satisfaction or waiver of the conditions set forth in
Article 7, on a date mutually satisfactory to the parties as soon as practicable
following satisfaction or waiver of such conditions, (i) Merger Sub will merge
with and into Michael, (ii) Michael will become a wholly-owned subsidiary of
NSU, (iii) Michael will change its name to "Michael Foods of Delaware, Inc.,"
(iv) NSU will complete the Distribution, and (v) NSU will change its name to
"Michael Foods, Inc." NSU, in its capacity as the publicly held entity owning
Michael as a wholly-owned subsidiary after giving effect to the Merger, the
Reverse Stock Split and Distribution, is then defined herein as the "Surviving
Corporation." The Merger will be effected pursuant to the Certificate of Merger
and pursuant to the provisions of, and with the effect provided in Section 251
of the DGCL.
2.1 Effect of Merger.
(a) On the Effective Date, (i) Merger Sub shall be merged with and into
Michael and the separate existence of Merger Sub shall cease, (ii) Michael will
become a wholly-owned subsidiary of NSU, (iii) Michael will change its name to
"Michael Foods of Delaware, Inc.," and (iv) NSU will change its name to "Michael
Foods, Inc." On the Effective Date, effective at the Effective Time, the
articles of incorporation of the Surviving Corporation will be amended and
restated as the New Articles. The Board of Directors of the Surviving
Corporation immediately after the Effective Time will consist of nine (9)
members of which two (2) directors will be designated in accordance with Section
8 of the Orderly Disposition and Registration Rights Agreement and the remaining
directors will be designated by the Michael Board. Immediately after the
Effective Time the Board of Directors of the Surviving Corporation will elect
the officers of Michael immediately prior to the Effective Time as the officers
of Surviving Corporation.
(b) At the Effective Time, Michael shall thereupon and thereafter be
responsible and liable for all the liabilities, debts and obligations of each of
Michael and the Merger Sub.
(c) At the Effective Time, Michael shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises, of a public as well as of
a private nature, of each of Michael and the Merger Sub; all property, real,
personal and mixed, and all debts due on whatever account, and all and every
other interest, of or belonging to or due to each of Michael and the Merger Sub,
shall be taken and deemed to be transferred to and vested in Michael without
further act or deed; and the title to any real estate or any interest therein,
vested in Michael and the Merger Sub shall not revert or be in any way impaired
by reason of the Merger.
(d) Subject to the provisions of Articles 7 and 8 hereof, the closing of
the transactions contemplated hereby shall take place at such location, on such
date and at such time as Michael and NSU mutually agree at the earliest
practicable time after the satisfaction or waiver of the conditions in Article
7, but in no event later than ten (10) business days after all such conditions
have been satisfied or waived, or on such other date as may be mutually agreed
by the parties hereto. On the closing date, to effect the Merger, the parties
hereto will cause a Certificate of Merger to be filed with the Delaware
Secretary of State in accordance with the DGCL. Also on the Effective Date, the
parties hereto will effect the other transactions contemplated hereby, including
the filing of the New Articles with the Minnesota Secretary of State. The Merger
shall be effective when the Certificate of Merger is filed with the Delaware
Secretary of State (the "Effective Time"). As used herein, the term "Effective
Date" shall mean the date on which the Certificate of Merger is filed with the
Delaware Secretary of State.
2.2 Effect on Michael Capital Stock and Merger Sub Capital Stock.
To effectuate the Merger, and subject to the terms and conditions of this
Agreement, at the Effective Time:
(a) each issued and outstanding share of Michael Common Stock (other than
shares of Michael Common Stock (i) held as treasury stock of Michael or (ii)
held directly or indirectly by NSU) shall be converted into and exchangeable for
one share (the "Exchange Ratio") of the Surviving Corporation Common Stock
(after giving effect to the adoption of the New Articles on the Effective Date
as provided in
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<PAGE> 118
Section 2.1(a) above) and the Surviving Corporation shall issue to holders of
Michael Common Stock shares of the Surviving Corporation Common Stock based on
the Exchange Ratio in exchange for the outstanding shares of Michael Common
Stock;
(b) the 1987 Incentive Stock Option Plan of Michael, the 1987 Non-Qualified
Stock Option Plan of Michael, the 1992 Stock Option Plan for Non-Employee
Directors of Michael and the 1994 Executive Incentive Plan (the "Michael Stock
Plans") and all outstanding options (the "Michael Options") to purchase shares
of Michael Common Stock issued pursuant to the Michael Stock Plans shall be
assumed and adopted by the Surviving Corporation in accordance with the terms of
the Michael Stock Plans and the Michael Options shall have the rights provided
in such plans (the "Continuing Options"). In the case of any option to which
Section 421 of the Code applies by reason of its qualification under Section 422
of the Code, the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such options shall be
determined in order to comply with Section 424(a) of the Code; and
(c) each share of Michael Common Stock held as treasury stock of Michael or
held directly or indirectly by NSU shall be canceled, retired and cease to
exist, and no exchange or payment shall be made with respect thereof.
(d) all outstanding shares of common stock, $.01 par value, of the Merger
Sub held by the Surviving Corporation shall be converted into one thousand
(1,000) shares of Michael Common Stock at the Effective Time and will remain
outstanding after the Effective Date as capital stock of Michael held by the
Surviving Corporation and all other outstanding shares of Michael Common Stock
shall be canceled.
2.3 Rights of Holders of Michael Capital Stock.
(a) On and after the Effective Date and until surrendered for exchange,
each outstanding stock certificate which immediately prior to the Effective Date
represented shares of Michael Common Stock shall be deemed for all purposes, to
evidence ownership of and to represent the number of whole shares of the
Surviving Corporation Common Stock into which such shares of Michael Common
Stock shall have been converted, and the record holder of such outstanding
certificate shall, after the Effective Date, be entitled to vote the shares of
the Surviving Corporation Common Stock into which such shares of Michael Common
Stock shall have been converted on any matters on which the holders of record of
the Surviving Corporation Common Stock, as of any date subsequent to the
Effective Date, shall be entitled to vote. In any matters relating to such
certificates of Michael Common Stock, the Surviving Corporation may rely
conclusively upon the record of shareholders maintained by Michael containing
the names and addresses of the holders of record of Michael Common Stock on the
Effective Date.
(b) On and after the Effective Date, the Surviving Corporation shall
reserve a sufficient number of authorized but unissued shares of the Surviving
Corporation Common Stock for issuance in connection with the conversion of
Michael Common Stock into the Surviving Corporation Common Stock and the shares
of Michael Common Stock reserved for issuance under the Michael Stock Plans,
including the shares issuable upon exercise of the Continuing Options.
2.4 Procedure for Exchange of Stock.
(a) After the Effective Date, holders of certificates theretofore
evidencing outstanding shares of Michael Common Stock, upon surrender of such
certificates to an exchange agent appointed by Michael (the "Exchange Agent"),
shall be entitled to receive certificates representing the number of whole
shares of the Surviving Corporation Common Stock into which shares of Michael
Common Stock theretofore represented by the certificates so surrendered shall
have been converted as provided in Section 2.2(a) hereof. As soon as practicable
after the Effective Date, the Surviving Corporation shall cause the Exchange
Agent to mail appropriate and customary transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of Michael Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange Agent) to each
holder of Michael Common Stock of record as of the Effective Date advising such
holder of the effectiveness of the Merger and the procedure for surrendering to
the Exchange Agent outstanding certificates formerly evidencing ownership of the
Michael Common Stock in exchange for new certificates evidencing ownership of
the Surviving Corporation Common
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Stock. The Surviving Corporation shall not be obligated to deliver the
consideration to which any former holder of shares of Michael Common Stock is
entitled as a result of the Merger until such holder surrenders the certificate
or certificates representing such shares for exchange as provided in such
transmittal materials and this Section 2.4(a). Upon surrender, each certificate
evidencing Michael Common Stock shall be canceled.
(b) After the Effective Date, holders of certificates theretofore
evidencing outstanding shares of NSU Common Stock subject to the Reverse Stock
Split, upon surrender of such certificates to the Exchange Agent, shall be
entitled to receive (i) certificates representing the whole number of shares of
the Surviving Corporation Common Stock into which the shares of NSU Common Stock
subject to the Reverse Stock Split so surrendered shall have been combined as a
result of the Reverse Stock Split, and (ii) cash payments in lieu of fractional
shares, if any, as provided in Section 1.4 hereof. As soon as practicable after
the Effective Date, the Surviving Corporation shall cause the Exchange Agent to
mail appropriate and customary transmittal materials (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of NSU Common Stock subject to the Reverse Stock
Split shall pass, only upon proper delivery of such certificates to the Exchange
Agent) to each holder of NSU Common Stock subject to the Reverse Stock Split of
record as of the Effective Date advising such holder of the effectiveness of the
Merger, the Reverse Stock Split and the Distribution and the procedure for
surrendering to the Exchange Agent outstanding certificates formerly evidencing
ownership of the NSU Common Stock subject to the Reverse Stock Split in exchange
for new certificates evidencing ownership of the Surviving Corporation Common
Stock. The Surviving Corporation shall not be obligated to deliver the
consideration to which any former holder of shares of NSU Common Stock subject
to the Reverse Stock Split is entitled as a result of the Merger and the Reverse
Stock Split until such holder surrenders the certificate or certificates
representing such shares for exchange as provided in such transmittal materials
and this Section 2.4(b). Notwithstanding the immediately preceding sentence, as
provided in the Distribution Agreement and in accordance with the terms thereof,
the certificates evidencing the Spinco Common Stock shall be mailed on the
Distribution Date to the NSU shareholders of record on the Distribution Record
Date, other than holders of Dissenting Shares, and the surrender of the
certificates evidencing the NSU Common Stock subject to the Reverse Stock Split
shall not be a condition to the delivery, after the Effective Date, of the
certificates evidencing the Spinco Common Stock. Upon surrender, each
certificate evidencing NSU Common Stock subject to the Reverse Stock Split shall
be canceled.
(c) On the Effective Date, the Surviving Corporation shall deposit, or
shall cause to be deposited, with the Exchange Agent, for exchange in accordance
with this Section 2.4, certificates representing the shares of the Surviving
Corporation Common Stock and cash in lieu of fractional shares (such
certificates and cash are hereinafter referred to as the "Exchange Fund") to be
issued or paid by the Surviving Corporation pursuant to Articles 1 and 2 in
connection with the Merger and the Reverse Stock Split. As provided in the
Distribution Agreement, the certificates evidencing the Spinco Common Stock
shall have been deposited by NSU with the transfer agent of NSU on or prior to
the Effective Date, for distribution on the Distribution Date in accordance with
the terms of the Distribution Agreement and the terms hereof. After the
Effective Date, the Surviving Corporation shall, on the payment or distribution
date, tender to the Exchange Agent as an addition to the Exchange Fund all
dividends and other distributions applicable to certificates held in the
Exchange Fund for shares of the Surviving Corporation Common Stock issuable in
respect of the NSU Common Stock subject to the Reverse Stock Split.
(d) Until outstanding certificates representing NSU Common Stock subject to
the Reverse Stock Split are surrendered as provided in Section 2.4(b) hereof, no
dividend or distribution payable to such holders of record of NSU Common Stock,
except the Spinco Common Stock payable in connection with the Distribution,
shall be paid to any holder of such outstanding certificates, but upon surrender
of such outstanding certificates by such holder there shall be paid to such
holder the amount of any dividends or distributions (without interest)
theretofore paid with respect to the whole shares of the Surviving Corporation
Common Stock into which such shares are converted as a result of the Reverse
Stock Split, but not paid to such holder, and which dividends or distributions
had a record date occurring subsequent to the Effective Date.
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(e) After the Effective Date, there shall be no further registration of
transfers on the records of Michael of outstanding certificates formerly
representing shares of Michael Common Stock at the Effective Date (other than
the shares of the Merger Sub which are converted into Michael Common Stock
pursuant to Section 2.3(c)) and there shall be no further registration of
transfers on the records of the Surviving Corporation of outstanding
certificates representing shares of NSU Common Stock subject to the Reverse
Stock Split. If any such certificate is presented to Michael or the Surviving
Corporation, it shall be forwarded to the Exchange Agent for cancellation and
exchange for certificates representing shares of the Surviving Corporation
Common Stock as herein provided.
(f) All shares of the Surviving Corporation Common Stock issued upon the
surrender for exchange of Michael Common Stock in accordance with the above
terms and conditions shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Michael Common Stock.
All shares of the Surviving Corporation Common Stock issued upon the surrender
for exchange of NSU Common Stock subject to the Reverse Stock Split in
accordance with the above terms and conditions shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of NSU
Common Stock.
(g) Any portion of the Exchange Fund (including the proceeds of any
investments thereof, any shares of the Surviving Corporation Common Stock and
any dividends or distributions thereon) that remains unclaimed by the holders of
Michael Common Stock or NSU Common Stock subject to the Reverse Stock Split, as
the case may be, for six months after the Effective Date shall be returned or
repaid to the Surviving Corporation. Any holders of Michael Common Stock or NSU
Common Stock subject to the Reverse Stock Split who have not theretofore
complied with this Section 2.4 shall thereafter look only to the Surviving
Corporation for issuance of their shares of the Surviving Corporation Common
Stock, cash in lieu of fractional shares and any unpaid dividends and
distributions on the Surviving Corporation Common Stock deliverable in respect
of the shares of NSU Common Stock subject to the Reverse Stock Split that such
holder holds as determined pursuant to this Agreement, in each case, without any
interest thereon. If outstanding certificates for shares of Michael Common Stock
or NSU Common Stock subject to the Reverse Stock Split are not surrendered or
the payment for them not claimed prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed items shall, to the extent not prohibited by abandoned property
and any other applicable law, become the property of the Surviving Corporation
(and to the extent not in its possession shall be paid over to it), free and
clear of all claims or interest of any person previously entitled to such
claims. Notwithstanding the foregoing, none of Surviving Corporation, Michael,
NSU, the Exchange Agent or any other person shall be liable to any former holder
of Michael Common Stock or NSU Common Stock subject to the Reverse Stock Split
for any amount delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(h) In the event any certificate for Michael Common Stock or NSU Common
Stock subject to the Reverse Stock Split shall have been lost, stolen or
destroyed, the Exchange Agent shall issue and pay in exchange for such lost,
stolen or destroyed certificate, upon the making of an affidavit of that fact by
the holder thereof, such shares of the Surviving Corporation Common Stock and
cash for fractional shares, if any, as may be required pursuant to this
Agreement; provided, however, that the Surviving Corporation, in its discretion
and as a condition precedent to the issuance and payment thereof, may require
the owner of such lost, stolen or destroyed certificate to deliver a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Surviving Corporation, Michael, NSU, the Exchange Agent or any other
party with respect to the certificate alleged to have been lost, stolen or
destroyed.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF MICHAEL
Michael hereby represents and warrants to NSU as follows:
3.1 Organization and Qualification. Michael is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power to carry on its business as now
conducted. Each of the Michael Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation. The copies of the Charter and Bylaws of Michael which have been
made available to NSU prior to the date of this Agreement are correct and
complete copies of such documents as in effect as of the date of this Agreement.
As used in this Agreement, the term "Charter" with respect to any corporation
shall mean those instruments that at that time constitute its charter as filed
or recorded under the general corporation or other applicable law of the
jurisdiction of its incorporation or organization, including the articles or
certificate of incorporation and any and all amendments thereto. Each of Michael
and the Michael Subsidiaries is licensed or qualified to do business in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be licensed or qualified, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Michael.
3.2 Authority Relative to this Agreement; Non-Contravention. Michael has
the requisite corporate power and authority to enter into this Agreement and the
Certificate of Merger and to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and the Certificate of Merger by
Michael and the consummation by Michael of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of Michael and,
except for approval of this Agreement and the Merger by the requisite vote of
Michael's shareholders, no other corporate proceedings on the part of Michael
are necessary to authorize this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Michael and, assuming it is a valid and binding obligation of NSU,
constitutes a valid and binding obligation of Michael enforceable in accordance
with its terms except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
Except as set forth in Schedule 3.2, neither Michael nor any of the Michael
Subsidiaries is subject to, or obligated under, any provision of (a) its Charter
or Bylaws, (b) any agreement, arrangement or understanding, (c) any license,
franchise or permit or (d) subject to obtaining the approvals referred to in the
next sentence, any law, regulation, order, judgment or decree, which would be
breached or violated, or in respect of which a right of termination or
acceleration or any encumbrance on any of its assets would be created, by the
execution, delivery or performance of this Agreement, the Certificate of Merger,
or the consummation of the transactions contemplated hereby or thereby, other
than any such breaches, violations, rights of termination or acceleration or
encumbrances which, in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect on Michael. Except for (a) the filing required by
the HSR Act and the termination of any waiting period thereunder, (b) the filing
with the SEC of a joint proxy statement in definitive form relating to the
meetings of Michael's and NSU's shareholders to be held in connection with this
Agreement and the transactions contemplated hereby, (c) the filing with the SEC
of the Registration Statement and effectiveness of the Registration Statement,
(d) the approval of the Merger, the Certificate of Merger and this Agreement by
the requisite vote of the shareholders of Michael (the "Requisite Michael
Shareholder Vote"), (e) approvals under applicable Blue Sky laws, (f) the filing
of the Certificate of Merger with the Delaware Secretary of State in accordance
with the DGCL, and (g) such filings, authorizations or approvals as may be set
forth in Schedule 3.2, no authorization, consent or approval of, or filing with,
any public body, court or authority is necessary on the part of Michael or any
of the Michael Subsidiaries for the consummation by Michael of the transactions
contemplated by this Agreement, except for such authorizations, consents,
approvals and filings as to which the failure to obtain or make the same will
not, in the aggregate, have a Material Adverse Effect on Michael or adversely
affect the consummation of the transactions contemplated hereby.
3.3 Capitalization. The authorized, issued and outstanding shares of
capital stock of Michael as of the date hereof is correctly set forth on
Schedule 3.3. The issued and outstanding shares of capital stock of
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Michael are duly authorized, validly issued, fully paid and nonassessable and
have not been issued in violation of any preemptive rights.
3.4 Exchange Act Reports. Prior to the execution of this Agreement, Michael
has delivered or made available to NSU complete and accurate copies of (a)
Michael's Annual Reports on Form 10-K for the years ended December 31, 1990,
1991, 1992, 1993 and 1994 (the "Michael 10-K Reports") as filed with the SEC,
(b) all Michael proxy statements and annual reports to shareholders used in
connection with meetings of Michael shareholders held since January 1, 1991 and
(c) Michael's Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1995 (the "Michael 10-Q Reports") as filed with the
SEC. As of their respective dates or as subsequently amended prior to the date
hereof, such documents (i) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading and (ii) complied as to form in all material respects
with the applicable rules and regulations of the SEC. Since January 1, 1991,
Michael has filed in a timely manner all reports that it was required to file
with the SEC pursuant to the Exchange Act, as amended, and the rules and
regulations promulgated thereunder. The Michael financial statements (including
any footnotes thereto) contained in the Michael 10-K Reports and the Michael
10-Q Reports were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as otherwise noted therein) and fairly
present the financial condition of Michael as of the dates thereof, except, in
the case of unaudited interim financial statements, subject to normal year-end
adjustments and the omission of footnotes.
3.5 Subsidiaries. Schedule 3.5 correctly sets forth the name and
jurisdiction of incorporation of each Subsidiary of Michael (each a "Michael
Subsidiary" and collectively the "Michael Subsidiaries"). Except as disclosed on
Schedule 3.5, all of the issued and outstanding shares of capital stock of each
Michael Subsidiary are owned directly or indirectly by Michael free and clear of
any lien, pledge, security interest, encumbrance or charge of any kind.
3.6 Litigation. As of the date hereof, there are no actions, suits,
proceedings, orders or investigations pending or, to the knowledge of Michael,
threatened against Michael, at law or in equity, or before or by any federal,
state or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign which challenges or seeks to make illegal
or to delay or otherwise directly or indirectly to restrain or prohibit the
consummation of the transactions contemplated hereby or seeks to obtain material
damages in connection with the transactions contemplated hereby. As used in this
Agreement, the phrase "to the knowledge of," or words of similar import, with
respect to an entity means to the knowledge of management officials of such
entity having responsibility for the matter in question.
3.7 No Brokers or Finders. Except as disclosed on Schedule 3.7, there are
no claims for brokerage commissions, finders' fees, investment advisory fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement, understanding, commitment or agreement made
by or on behalf of Michael or any of the Michael Subsidiaries.
3.8 Prospectus/Proxy Statement. At the time the Registration Statement
becomes effective and at the time the Prospectus/Proxy Statement is mailed to
the shareholders of Michael and NSU in order to obtain approvals referred to in
Section 6.11 and at all times subsequent to such mailing up to and including the
times of such approvals, the Registration Statement and the Prospectus/Proxy
Statement (including any amendments or supplements thereto), with respect to all
information furnished to NSU by Michael as provided in Section 6.4(b) below) for
inclusion in the Prospectus/Proxy Statement or consistent with information so
furnished by Michael relating to Michael (including the Michael Subsidiaries)
and its shareholders, Michael Common Stock, the Michael Stock Plans, the
Continuing Options, this Agreement, the Certificate of Merger, the Merger and
all other transactions contemplated hereby, will (a) comply in all material
respects with applicable provisions of the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder, and (b) not contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they are made, not misleading.
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3.9 Disclosure. The representations and warranties of Michael contained in
this Agreement are true and correct in all material respects, and such
representations and warranties do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to Michael which has not been
disclosed to NSU pursuant to this Agreement, the Schedules hereto, the Michael
10-K Reports and the Michael 10-Q Reports, all taken together as a whole, which
has had or could reasonably be expected to have a Material Adverse Effect on
Michael or materially adversely affect the ability of Michael to consummate in a
timely manner the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF NSU
NSU hereby represents and warrants to Michael as follows:
4.1 Organization and Qualification. NSU is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has the requisite corporate power to carry on its business as now conducted.
Each of the NSU Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation. The
copies of the Charter and Bylaws of NSU and Merger Sub which have been made
available to Michael on or prior to the date of this Agreement are correct and
complete copies of such documents as in effect as of the date of this Agreement.
Each of NSU and the NSU Subsidiaries is licensed or qualified to do business in
every jurisdiction in which the nature of its business or its ownership of
property requires it to be licensed or qualified, except where the failure to be
so licensed or qualified would not have a Material Adverse Effect on NSU.
4.2 Authority Relative to this Agreement; Non-Contravention. Each of NSU,
the Merger Sub and Spinco has the requisite corporate power and authority to
enter into this Agreement, the Certificate of Merger and the Distribution
Agreement to which it is or will be a party and to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement, the
Certificate of Merger and the Distribution Agreement by NSU, the Merger Sub and
Spinco to which it is or will be a party, and the consummation by NSU, the
Merger Sub and Spinco of the transactions contemplated hereby and thereby have
been duly authorized by the Boards of Directors of NSU, the Merger Sub and
Spinco. Except for approval of this Agreement, the Merger, the New Articles, the
Reverse Stock Split and the Distribution by the requisite vote of NSU's
shareholders, no other corporate proceedings on the part of NSU, Merger Sub or
Spinco are necessary to authorize this Agreement, the Certificate of Merger and
the Distribution Agreement and the consummation of the transactions contemplated
hereby and thereby. This Agreement has been duly executed and delivered by NSU
and Merger Sub and, assuming it is a valid and binding obligation of Michael,
constitutes a valid and binding obligation of NSU and Merger Sub enforceable in
accordance with its terms except as enforcement may be limited by general
principles of equity whether applied in a court of law or a court of equity and
by bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally. Except as set forth in Schedule 4.2, neither NSU nor any of
the NSU Subsidiaries is subject to, or obligated under, any provision of (a) its
Charter or Bylaws, (b) any agreement, arrangement or understanding, (c) any
license, franchise or permit or (d) subject to obtaining the approvals referred
to in the next sentence, any law, regulation, order, judgment or decree, which
would be breached or violated, or in respect of which a right of termination or
acceleration or any encumbrance on any of its assets would be created, by the
execution, delivery or performance of this Agreement, the Certificate of Merger,
the Distribution Agreement or the consummation of the transactions contemplated
hereby or thereby, other than any such breaches, violations, rights of
termination or acceleration or encumbrances which, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on NSU. Except for (a)
the filings, notices, consents and approvals described in Section 3.2 hereof,
(b) the filing with the SEC of a registration statement on Form S-1 registering
the shares of Spinco Common Stock to be distributed in the Distribution, if
required, (c) approval of the Merger and this Agreement, the New Articles, the
Reverse Stock Split and the Distribution by the requisite vote of the
shareholders of NSU (the "Requisite NSU Shareholder Vote"), (d) the filing of
the New Articles with the Minnesota Secretary of State, and (e) such filings,
authorizations or approvals as may
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be set forth in Schedule 4.2, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of NSU
or any of the NSU Subsidiaries for the consummation by NSU or the Merger Sub of
the transactions contemplated by this Agreement, except for such authorizations,
consents, approvals and filings as to which the failure to obtain or make the
same will not, in the aggregate, have a Material Adverse Effect on NSU or
adversely affect the consummation of the transactions contemplated hereby.
4.3 Capitalization. The authorized, issued and outstanding shares of
capital stock of each of NSU and Merger Sub as of the date hereof is correctly
set forth on Schedule 4.3. The issued and outstanding shares of capital stock of
each of NSU, Merger Sub and Spinco are duly authorized, validly issued, fully
paid and nonassessable and have not been issued in violation of any preemptive
rights. Except as disclosed on Schedule 4.3, there are no options, warrants,
conversion privileges or other rights, agreements, arrangements or commitments
obligating NSU or Merger Sub to issue, sell, purchase or redeem any shares of
its capital stock or securities or obligations of any kind convertible into or
exchangeable for any shares of its capital stock. Schedule 4.3 contains true and
correct copies of all such agreements, arrangements (including all stock plans,
but excluding individual stock option agreements) or commitments. The
outstanding shares of NSU Common Stock have been duly listed for trading on the
Pacific Stock Exchange and the NASDAQ-NMS.
4.4 Exchange Act Reports. Prior to the execution of this Agreement, NSU has
delivered or made available to Michael complete and accurate copies of (a) NSU's
Annual Reports on Form 10-K for the years ended December 31, 1990, 1991, 1992,
1993 and 1994 (the "NSU 10-K Reports") as filed with the SEC, (b) all NSU proxy
statements and annual reports to shareholders used in connection with meetings
of NSU shareholders held since January 1, 1991 and (c) NSU's Quarterly Reports
on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1995
(the "NSU 10-Q Reports") as filed with the SEC. As of their respective dates or
as subsequently amended prior to the date hereof, such documents (i) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances under which they were made, not misleading and (ii)
complied as to form in all material respects with the applicable rules and
regulations of the SEC. Since January 1, 1991, NSU has filed in a timely manner
all reports that it was required to file with the SEC pursuant to the Exchange
Act. The NSU financial statements (including footnotes thereto) contained in the
NSU 10-K Reports and the NSU 10-Q Reports were prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as otherwise
noted therein) and fairly present the financial condition of NSU as of the dates
thereof, except in the case of unaudited interim financial statements subject to
normal year-end adjustments and the omission of footnotes.
4.5 Subsidiaries. Schedule 4.5 correctly sets forth the name and
jurisdiction of incorporation of each corporation, fifty percent or more of the
voting securities of which is owned directly or indirectly by NSU (each a "NSU
Subsidiary" and collectively the "NSU Subsidiaries"). All of the issued and
outstanding shares of capital stock of each NSU Subsidiary are owned directly or
indirectly by NSU free and clear of any lien, pledge, security interest,
encumbrance or charge of any kind.
4.6 Absence of Certain Developments. Except as disclosed in NSU's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995 or on Schedule 4.6,
unless otherwise expressly contemplated or permitted by this Agreement, since
September 30, 1995 to the date hereof, neither NSU nor any of the NSU
Subsidiaries has:
(a) issued or sold any of its equity securities other than NSU Common
Stock, securities convertible into or exchangeable for its equity
securities other than NSU Common Stock, warrants, options or other rights
to acquire its equity securities other than NSU Common Stock;
(b) reclassified any of its outstanding shares of capital stock; or
(c) agreed to do any of the foregoing.
4.7 Litigation. As of the date hereof, there are no actions, suits,
proceedings, orders or investigations pending or, to the knowledge of NSU,
threatened against NSU or any of the NSU Subsidiaries, at law or in equity, or
before or by any federal, state or other governmental department, commission,
board, bureau,
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agency or instrumentality, domestic or foreign which challenges or seeks to make
illegal or to delay or otherwise directly or indirectly to restrain or prohibit
the consummation of the transactions contemplated hereby or seeks to obtain
material damages in connection with the transactions contemplated hereby.
4.8 No Brokers or Finders. Except as disclosed on Schedule 4.8, there are
no claims for brokerage commissions, finders' fees, investment advisory fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement, understanding, commitment or agreement made
by or on behalf of NSU or any of the NSU Subsidiaries.
4.9 Prospectus/Proxy Statement. At the time the Registration Statement
becomes effective and at the time the Prospectus/Proxy Statement is mailed to
the shareholders of NSU and Michael in order to obtain approvals referred to in
Section 6.11 hereof and at all times subsequent to such mailing up to and
including the times of such approvals, the Registration Statement and the
Prospectus/Proxy Statement (including any amendments or supplements thereto),
with respect to all information set forth therein relating to NSU (including the
NSU Subsidiaries) and its shareholders, this Agreement, the Certificate of
Merger, the Distribution and all other transactions contemplated hereby, will
(a) comply in all material respects with applicable provisions of the Securities
Act and the Exchange Act, and (b) not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they are made, not misleading, except that, in each case, no such
representations shall apply to any written information, including financial
statements, of or provided by Michael for such Prospectus/Proxy Statement.
4.10 Validity of the Surviving Corporation Common Stock. The shares of the
Surviving Corporation Common Stock to be issued to holders of Michael Common
Stock pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable.
4.11 Ownership of Michael Common Stock. As of the date hereof, NSU owns
good and valid title to 7,354,950 shares of Michael Common Stock, free and clear
of any liens, claims, encumbrances or restrictions (other than restrictions
imposed by securities laws) except as disclosed on Schedule 4.11.
4.12 Liabilities. As of the Effective Time, (a) NSU shall have no known
Liabilities other than (i) the NSU Assumed Liabilities for which the Surviving
Corporation shall be responsible, and (ii) the contingent liabilities listed in
Schedule 4.12 hereto against which the Surviving Corporation and its
Subsidiaries will be indemnified pursuant to Section 5.01 of the Distribution
Agreement, and (b) Merger Sub shall have no Liabilities, except its obligations
under this Agreement.
4.13 Disclosure. The representations and warranties of NSU contained in
this Agreement are true and correct in all material respects, and such
representations and warranties do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to NSU and the NSU
Subsidiaries which has not been disclosed to Michael pursuant to this Agreement,
the Schedules hereto and the NSU 10-K Reports and the NSU 10-Q Reports, all
taken together as a whole, which has had or could reasonably be expected to have
a Material Adverse Effect on NSU or materially adversely affect the ability of
NSU to consummate in a timely manner the transactions contemplated hereby.
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ARTICLE 5
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 Conduct of Business by NSU. From the date of this Agreement to the
Effective Date, unless Michael shall otherwise agree in writing or as otherwise
expressly contemplated or permitted by other provisions of this Agreement,
including but not limited to, this Section 5.1, NSU shall not, directly or
indirectly, (a) amend or propose to amend its Charter or Bylaws except for the
New Articles, (b) issue, sell or grant any of its equity securities other than
NSU Common Stock, securities convertible into or exchangeable for its equity
securities other than NSU Common Stock, warrants, options or other rights to
acquire its equity securities other than NSU Common Stock, (c) reclassify any
outstanding shares of capital stock of NSU, (d) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any corporation,
partnership, joint venture or other business organization or division or assets
thereof, except by a NSU Subsidiary and in a transaction in which NSU shall not
have any Liabilities with respect thereto after the Effective Date, (e) sell,
transfer, pledge or otherwise encumber the Michael Common Stock owned by NSU
other than as collateral for indebtedness under the Credit Agreement, (f)
purchase or otherwise acquire any additional shares of Michael Common Stock, (g)
default in its obligations under any material debt, contract or commitment which
default results in the acceleration of obligations due thereunder, or (h) enter
into or propose to enter into, or modify or propose to modify, any agreement,
arrangement, or understanding with respect to any of the foregoing matters.
5.2 Conduct of Business by Michael. From the date of this Agreement to the
Effective Date, unless NSU shall otherwise agree in writing or as otherwise
expressly contemplated or permitted by other provisions of this Agreement,
including but not limited to, this Section 5.2, Michael shall not, directly or
indirectly, (a) amend its Charter or Bylaws, (b) split, combine or reclassify
any outstanding shares of capital stock of Michael, (c) declare, set aside, make
or pay any dividend or distribution in cash, stock, property or otherwise with
respect to the capital stock of Michael, except for regular quarterly dividends
which are not in excess of $.05 per share per quarter on the Michael Common
Stock, or (d) default in its obligations under any material debt, contract or
commitment which default results in the acceleration of obligations due
thereunder, except for such defaults arising out of this Agreement for which
consents, waivers or modifications are required to be obtained as set forth on
Schedule 3.2.
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 Governmental Filings. Each party will use all reasonable efforts and
will cooperate with the other party in the preparation and filing, as soon as
practicable, of all filings, applications or other documents required under
applicable laws, including the Securities Act, the Exchange Act and the HSR Act,
to consummate the transactions contemplated by this Agreement. Prior to
submitting each filing, application, registration statement or other document
with the applicable regulatory authority, each party will, to the extent
practicable, provide the other party with an opportunity to review and comment
on each such application, registration statement or other document to the extent
permitted by applicable law. Each party will use all reasonable efforts and will
cooperate with the other party in taking any other actions necessary to obtain
such regulatory or other approvals and consents at the earliest practicable
time, including participating in any required hearings or proceedings. Subject
to the terms and conditions herein provided, each party will use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement.
6.2 Expenses. Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses. Any such costs or expenses incurred by NSU shall be paid prior to the
Effective Time. Notwithstanding the foregoing, NSU and Michael will each pay,
when due, one-half of (i) all filing fees required to be paid under the HSR Act
by Michael, NSU or any shareholder of NSU who may be an "Ultimate Parent Entity"
under the HSR Act in connection with the Merger (but excluding the
Distribution), (ii) all
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costs of all SEC filing fees with respect to the Registration Statement as those
fees relate to the shares of Surviving Corporation Common Stock issuable to the
holders of Michael Common Stock as a result of the Merger, and (iii) all costs
of qualifying the Surviving Corporation securities to be issued in connection
with the transactions contemplated by this Agreement under state blue sky laws
to the extent necessary.
6.3 Access to Information; Confidentiality.
(a) Each party shall permit and shall cause each of its subsidiaries to
permit the other party full access on reasonable notice and at reasonable hours
to its properties and shall disclose and make available (together with the right
to copy) to the other party and its officers, employees, attorneys, accountants
and other representatives, all books, papers and records relating to the assets,
stock, properties, operations, obligations and liabilities of such party and its
subsidiaries, including, without limitation, all books of account (including,
without limitation, the general ledger), tax records, minute books of directors'
and shareholders' meetings, organizational documents, bylaws, contracts and
agreements, filings with any regulatory authority, accountants' work papers,
litigation files (including, without limitation, legal research memoranda),
documents relating to assets and title thereto (including, without limitation,
abstracts, title insurance policies, surveys, environmental reports, opinions of
title and other information relating to the real and personal property), plans
affecting employees, securities transfer records and shareholder lists, and any
books, papers and records relating to other assets or business activities in
which such party may have a reasonable interest; provided, however, that the
foregoing rights granted to each party shall, whether or not and regardless of
the extent to which the same are exercised, in no way affect the nature or scope
of the representations, warranties and covenants of the respective party set
forth herein.
(b) Each party shall comply with the provisions of its confidentiality
letter dated December 1, 1995 with the other party. This Agreement does not
supersede or modify the terms of such confidentiality letters.
6.4 Registration Statement.
(a) For the purpose (i) of holding meetings of shareholders of Michael and
NSU to approve the Merger and this Agreement and, in the case of NSU, to approve
the New Articles, the Reverse Stock Split and the Distribution, and (ii) of
registering with the SEC and with applicable state securities authorities the
securities of the Surviving Corporation to be issued as contemplated by this
Agreement, the parties hereto shall cooperate in the preparation of an
appropriate registration statement (such registration statement, together with
all and any amendments and supplements thereto, being herein referred to as the
"Registration Statement"), which shall include a prospectus/joint proxy
statement satisfying all applicable requirements of the Securities Act, the
Exchange Act, applicable state securities laws and the rules and regulations
thereunder (such prospectus/joint proxy statement, together with any and all
amendments or supplements thereto, being herein referred to as the
"Prospectus/Proxy Statement").
(b) Michael shall furnish such information concerning Michael and the
Michael Subsidiaries as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to Michael, the Michael Subsidiaries and
Michael securities, to be prepared in accordance with Section 6.4(a). Michael
agrees promptly to advise NSU if at any time prior to the Michael or NSU
shareholders' meetings any information provided by Michael in the
Prospectus/Proxy Statement becomes incorrect or incomplete in any material
respect, and to share with NSU the information needed to correct such inaccuracy
or omission.
(c) NSU shall furnish Michael with such information concerning NSU and the
NSU Subsidiaries as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to NSU, the NSU Subsidiaries and the NSU
securities, to be prepared in accordance with Section 6.4(a). NSU agrees
promptly to advise Michael if at any time prior to the Michael or NSU
shareholders' meetings any information provided by NSU in the Prospectus/Proxy
Statement becomes incorrect or incomplete in any material respect, and to
provide Michael with the information needed to correct such inaccuracy or
omission.
(d) NSU shall use all reasonable efforts to promptly prepare and (subject
to receipt of audited financial statements of each of NSU and Michael for the
year ended December 31, 1995) file the Registration Statement with the SEC and
applicable state securities agencies. NSU shall use reasonable efforts to cause
the Registration Statement to become effective under the Securities Act and
applicable state securities laws at
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the earliest practicable date. NSU agrees to provide Michael with reasonable
opportunity to review and comment on the Registration Statement and any
amendment thereto before filing with the SEC or any other governmental entity
and agrees not to make such filing if Michael reasonably objects to the
completeness or accuracy of any information contained therein. Michael
authorizes NSU to utilize in the Registration Statement the information
concerning Michael, the Michael Subsidiaries and Michael securities provided to
NSU for the purpose of inclusion in the Prospectus/Proxy Statement. NSU shall
advise Michael promptly when the Registration Statement has become effective and
of any supplements or amendments thereto, and NSU shall furnish Michael with
copies of all such documents. Prior to the Effective Date or the termination of
this Agreement, each party shall consult with the other with respect to any
material (other than the Prospectus/Proxy Statement) that might constitute a
"prospectus" relating to the Merger within the meaning of the Securities Act.
(e) Michael shall use reasonable efforts to cause to be delivered to NSU a
letter relating to the financial statements of Michael included in the
Registration Statement from Grant Thornton LLP, Michael's independent auditors,
dated a date within two business days before the date on which the Registration
Statement shall become effective and addressed to NSU, in form and substance
reasonably satisfactory to NSU and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
(f) NSU shall use reasonable efforts to cause to be delivered to Michael a
letter relating to the financial statements of NSU included in the Registration
Statement from Grant Thornton LLP, NSU's independent auditors, dated a date
within two business days before the date on which the Registration Statement
shall become effective and addressed to Michael, in form and substance
reasonably satisfactory to Michael and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(g) NSU shall bear all printing and mailing costs in connection with the
preparation and mailing of the Prospectus/Proxy Statement to NSU shareholders.
Michael shall bear all printing and mailing costs in connection with the
preparation and mailing of the Prospectus/Proxy Statement to Michael
shareholders. Michael and NSU shall each bear their own legal and accounting
expenses in connection with the Registration Statement.
6.5 Accounting and Tax Treatment. Neither NSU nor Michael, nor Surviving
Corporation after the Effective Date, shall, directly or indirectly, voluntarily
take any action which would disqualify the Merger, the Reverse Stock Split and
the Distribution as a business combination utilizing the reverse acquisition
concept with Michael being the accounting acquiror for accounting purposes and
the Merger as a "reorganization" that would be tax free to the shareholders of
NSU and Michael pursuant to Section 368(a) of the Code.
6.6 Michael Stock Plans. At or prior to the Effective Time, NSU shall take
all corporate action necessary to authorize and reserve for issuance a
sufficient number of shares of the Surviving Corporation Common Stock, equal to
the number of shares of Michael Common Stock reserved for issuance under the
Michael Stock Plans to be adopted and assumed by the Surviving Corporation at
the Effective Time, including the shares issuable upon exercise of the
Continuing Options, in accordance with Section 2.2(b).
6.7 Press Releases. Michael and NSU shall agree with each other as to the
form and substance of any press release related to this Agreement or the
transactions contemplated hereby, and shall consult with each other as to the
form and substance of other public disclosures which may relate to the
transactions contemplated by this Agreement, provided, however, that nothing
contained herein shall prohibit either party, following notification to the
other party, from making any disclosure which is required by law or regulation.
6.8 Directors and Officers Insurance. Each of NSU and Michael will use its
reasonable efforts to obtain a quote for "tail policy" coverage for a period of
three years after the Effective Date under its officers and directors liability
insurance for claims asserted after the Effective Date against any person who
was an officer or director of NSU or any NSU Subsidiary prior to the Effective
Date which claims relate to the period prior to the Effective Date. If such
coverage is available, NSU will, prior to the Effective Date, select which
coverage it prefers and purchase or reimburse Michael for the cost of such
coverage.
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6.9 Securities Reports. Each of Michael and NSU agree to provide to the
other party copies of all reports and other documents filed under the Securities
Act or Exchange Act with the SEC by it between the date hereof and the Effective
Date within two days after the date such reports or other documents are filed
with the SEC. Upon delivery of any such report or document, the delivering party
shall be deemed to have made the representations to the receiving party with
respect thereto as set forth in Sections 3.4 and 4.4, respectively.
6.10 Stock Listing. NSU shall use all reasonable efforts to list on the
NASDAQ-NMS the shares of the Surviving Corporation Common Stock to be issued in
connection with the Merger and the Reverse Stock Split, and to change the
trading symbol for the Surviving Corporation Common Stock to MIKL on the
Effective Date.
6.11 Shareholder Approvals. Each of Michael and NSU shall call a meeting of
its shareholders for the purpose of voting upon this Agreement and the Merger,
and, in the case of NSU, the New Articles, the Reverse Stock Split and the
Distribution, and shall hold such meeting on the later of (a) June 6, 1996, or
(b) such other date(s) as mutually agreed by NSU and Michael, but such mutually
agreed date(s) shall not be later than forty-five (45) days after the
effectiveness of the Registration Statement. The Board of Directors of each of
Michael and NSU shall recommend approval of this Agreement and the Merger, and,
in the case of NSU, the New Articles, the Reverse Stock Split and the
Distribution, and use all reasonable efforts (including, without limitation,
soliciting proxies for such approvals) to obtain approvals thereof from its
shareholders, provided, however, the Board of Directors of either may fail to
make the recommendation, and/or to seek to obtain the shareholder approval
referred to in this sentence, or withdraw, modify or change any such
recommendation, if such Board of Directors determines, after consultation with
counsel, that the making of such recommendation, the seeking to obtain such
shareholder approval, or the failure to so withdraw, modify or change its
recommendation, is reasonably likely to constitute a breach of the fiduciary or
legal obligations of such Board of Directors.
6.12 No Solicitation.
(a) Unless and until this Agreement shall have been terminated pursuant to
Section 8.1, neither NSU nor its officers, directors or agents shall, directly
or indirectly, encourage, solicit or initiate discussions or negotiations with,
or engage in negotiations or discussions with, or provide non-public information
to, any corporation, partnership, person or other entity or groups concerning
any merger or sale of substantial assets, except for the sale of NSU assets
other than the Michael Common Stock owned by NSU; provided that NSU may engage
in such discussion in response to an unsolicited proposal from an unrelated
party if the Board of Directors of NSU determines, after consultation with
counsel, that the failure to engage in such discussions is reasonably likely to
constitute a breach of the fiduciary or legal obligations of the Board of
Directors of NSU. NSU will promptly advise Michael if it receives a proposal or
inquiry with respect to the matters described above.
(b) Unless and until this Agreement shall have been terminated pursuant to
Section 8.1, neither Michael nor its officers, directors or agents shall,
directly or indirectly, encourage, solicit or initiate discussions or
negotiations with, or engage in negotiations or discussions with, or provide
non-public information to, any corporation, partnership, person or other entity
or groups concerning any merger or sale of substantial assets, except if (i)
Michael is the surviving corporation in such transaction, and (ii) the
shareholders of Michael immediately preceding such transaction will own at least
51% of the outstanding shares of Michael after giving effect to such
transaction; provided that Michael may engage in such discussion in response to
an unsolicited proposal from an unrelated party if the Board of Directors of
Michael determines, after consultation with counsel, that the failure to engage
in such discussions is reasonably likely to constitute a breach of the fiduciary
or legal obligations of the Board of Directors of Michael. Michael will promptly
advise NSU if it receives a proposal or inquiry with respect to the matters
described above.
6.13 Failure to Fulfill Conditions. In the event that either of the parties
hereto determines that a condition to its respective obligations to consummate
the transactions contemplated hereby cannot be fulfilled on or prior to the
termination of this Agreement, it will promptly notify the other party.
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6.14 Tax Ruling or Opinion. Michael and NSU shall reasonably cooperate with
each other in submitting the request for private letter ruling by the IRS
contemplated by Section 7.1(d), shall promptly notify the other of any
communications with or from the IRS with respect to the ruling request, and
shall not submit any written material to the IRS in connection with the ruling
request without consulting with the other.
6.15 Resignations and Election of Directors. At the Effective Time, NSU
shall deliver the voluntary resignations of each officer of NSU and each
director of NSU who is not designated to be a director of the Surviving
Corporation in accordance with Section 2.1(a) and shall elect the other persons
who shall be directors of the Surviving Corporation in accordance with Section
2.1(a) to be directors of the Surviving Corporation upon the consummation of the
Merger.
6.16 Orderly Disposition and Registration Rights Agreement. Contemporaneous
with the execution and delivery of this Agreement, NSU shall execute and deliver
and shall cause the parties other than NSU to execute and deliver the Orderly
Disposition and Registration Rights Agreement. NSU covenants and agrees that the
provisions of the Orderly Disposition and Registration Rights Agreement will not
be amended, waived, terminated or otherwise modified prior to the Effective Date
without the prior written consent of Michael.
6.17 Shareholder Vote. NSU will vote the shares of Michael Common Stock
owned by NSU in favor of the Merger, this Agreement, the Certificate of Merger
and the persons nominated by the Michael Board of Directors for election as
directors of Michael at the meeting of the Michael shareholders contemplated by
Section 6.11, provided the number of nominees is not greater than nine and
provided further that James H. Michael, Miles E. Efron and Jeffrey J. Michael
are nominees of Michael.
6.18 Filing of Reports Necessary for use of Rule 145. After the Effective
Date, Surviving Corporation shall use reasonable efforts to file all reports and
data with the SEC necessary to permit the shareholders of Michael and NSU who
may be deemed "underwriters" (within the meaning of Rule 145 under the
Securities Act) of Michael Common Stock to sell the Surviving Corporation Common
Stock received by them in connection with the Merger pursuant to Rules 144 and
145(d) under the Securities Act if they would otherwise be so entitled. After
the Effective Date, Surviving Corporation will use reasonable efforts to file
with the SEC reports, statements, and other materials required by the federal
securities laws on a timely basis.
6.19 Notification of Certain Matters.
(a) Each party shall give prompt notice to the other party of (i) the
occurrence or failure to occur of any event or the discovery of any information,
which occurrence, failure or discovery would be likely to cause any
representation or warranty on its part contained in this Agreement to be untrue,
inaccurate or incomplete after the date hereof in any material respect or, in
the case of any representation or warranty given as of a specific date, would be
likely to cause any such representation or warranty on its part contained in
this Agreement to be untrue, inaccurate or incomplete in any material respect as
of such specific date, and (ii) any material failure of such party to comply
with or satisfy any covenant or agreement to be complied with or satisfied by it
hereunder.
(b) From time to time after the date hereof and prior to the Effective
Time, each party shall promptly supplement or amend any of its representations
and warranties which apply to the period after the date hereof by delivering an
updated Schedule to the other party pursuant to this Section 6.19(b) with
respect to any matter hereafter arising which would render any such
representation or warranty after the date of this Agreement materially untrue,
inaccurate or incomplete as a result of such matter arising. Such supplement or
amendment to a party's representations and warranties contained in an updated
Schedule delivered pursuant to this Section 6.19(b) shall be deemed to have
modified the representations and warranties of the disclosing party, and no such
supplement or amendment, or the information contained in such updated Schedule,
shall constitute a breach of a representation or warranty of the disclosing
party; provided that no such supplement or amendment may cure any breach of a
covenant or agreement of any party under Articles 5 or 6. Within fifteen (15)
days after receipt of such supplement or amendment, the receiving party may
terminate this Agreement pursuant to Section 7.1(g) hereof if (i) the
information in such supplement or amendment together with the information in any
and all of the supplements or amendments previously provided by the
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disclosing party indicate that the disclosing party has suffered or is
reasonably likely to suffer a Material Adverse Effect or, in the case of an
updated Schedule 4.12 is, in Michael's reasonable determination a material
liability, and (ii) the disclosing party has not cured the matters giving rise
to such termination within fifteen (15) days after the receiving party notifies
the disclosing party that it is exercising its right to terminate this Agreement
under this Section 6.19(b).
6.20 Notification of Anticipated NSU Net Indebtedness. No later than thirty
(30) days after the initial filing of the Registration Statement, NSU shall
notify Michael of the anticipated amount of the NSU Indebtedness at the
Effective Time, less the amount of cash to be included in the Retained Assets at
the Effective Time (the "Anticipated NSU Net Indebtedness"). NSU covenants that
the amount of the NSU Net Assumed Liabilities at the Effective Time less the
amount of the Dissenting Shares Holdback will be an amount within the range of
(i) the Anticipated NSU Net Indebtedness less $2,000,000, and (ii) the
Anticipated NSU Net Indebtedness plus $2,000,000.
6.21 Distribution Agreement. Prior to the Effective Date, NSU shall and
shall cause Spinco to duly execute and deliver the Distribution Agreement. NSU
shall perform all of its obligations under the Distribution Agreement which are
to be performed thereunder prior to the Effective Time and NSU shall cause
Spinco to perform all of its obligations under the Distribution Agreement which
are to be performed thereunder prior to the Effective Time. NSU covenants that
the Distribution Agreement will not be amended, waived, terminated or otherwise
modified prior to the Effective Time without the prior written consent of
Michael.
ARTICLE 7
CONDITIONS
7.1 Conditions to Obligations of Each Party. The respective obligations of
each party to effect the transactions contemplated hereby shall be subject to
the fulfillment or waiver at or prior to the Effective Date of the following
conditions:
(a) No Injunction. No injunction or other order entered by a state or
federal court of competent jurisdiction shall have been issued and remain in
effect which would prohibit or make illegal the consummation of the transactions
contemplated hereby.
(b) No Prohibitive Change of Law. There shall have been no law, statute,
rule or regulation, domestic or foreign, enacted or promulgated which would
prohibit or make illegal the consummation of the transactions contemplated
hereby.
(c) Registration Statement. The Registration Statement and the registration
statement relating to the Spinco Common Stock to be distributed in the
Distribution, if required, shall have been declared effective and shall not be
subject to a stop order of the SEC, the Spinco Common Stock shall have been
registered pursuant to the Exchange Act and, if the offer and sale of the
Surviving Corporation securities in the Merger or the Spinco Common Stock in the
Distribution pursuant to this Agreement is required to be registered under the
securities laws of any state, the registration statements shall have been
declared effective and shall not be subject to a stop order of the securities
commission in such state.
(d) Tax Ruling or Federal Tax Opinion. Michael and NSU shall have received
a private letter ruling from the IRS or tax opinion addressed to both Michael
and NSU by counsel or independent certified accountants mutually acceptable to
Michael and NSU based on customary reliance and subject to customary
qualifications, to the effect that for federal income tax purposes:
(i) The formation of Merger Sub and the merger of Merger Sub into
Michael will be disregarded for federal income tax purposes, and the
transaction will be treated as an acquisition by NSU of the stock of
Michael in exchange solely for the shares of the Surviving Corporation
Common Stock.
(ii) The acquisition by NSU of all of the stock of Michael held by
stockholders other than NSU solely in exchange for the Surviving
Corporation Common Stock will qualify as a reorganization under
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Section 368(a)(1)(B) of the Code. NSU and Michael will each be a party to
the reorganization within the meaning of Section 368(b) of the Code.
(iii) The transfer by NSU of all of the stock of the NSU Subsidiaries
(other than Spinco and the Merger Sub) held, directly and indirectly, by
NSU to Spinco will qualify as a reorganization under Section 368(a)(i)(D)
of the Code.
(iv) No gain or loss will be recognized by NSU upon the distribution
of the stock of Spinco to persons who were stockholders of NSU on the
record date for the distribution pursuant to Section 361(c)(1) of the Code.
(v) No gain or loss will be recognized by stockholders of NSU upon the
receipt of the Spinco stock distributed by NSU pursuant to Section
355(a)(1) of the Code.
(vi) The Reverse Stock Split will not be treated as a stock
distribution, or a transaction that has the effect of such a distribution,
to which Sections 301, 305(b) or 305(c) apply. As a result, no taxable
income will be recognized under such Sections by any of the stockholders of
Michael or NSU, except for cash paid in lieu of fractional shares to
holders of NSU Common Stock.
(e) Listing. The Surviving Corporation Common Stock to be issued to holders
of Michael Common Stock as a result of the Merger and to the holders of NSU
Common Stock as a result of the Reverse Stock Split shall have been approved for
listing on the NASDAQ-NMS.
(f) Consents and Approvals. All material consents and approvals necessary
to consummate the transactions contemplated by this Agreement shall have been
obtained, including those set forth on Schedules 3.2 and 4.2, but excluding any
consents or approvals required pursuant to the Credit Agreement.
(g) Adverse Proceedings. There shall not be threatened, instituted or
pending any action or proceeding before any court or governmental authority or
agency, domestic or foreign, challenging or seeking to make illegal, or to delay
or otherwise directly or indirectly to restrain or prohibit, the consummation of
the transactions contemplated hereby or seeking to obtain material damages in
connection with the transactions contemplated hereby.
(h) Governmental Action. There shall not be any action taken, or any
statute, rule, regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby by any federal, state or other court, government or
governmental authority or agency, which could reasonably be expected to result,
directly or indirectly, in any of the consequences referred to in Section
7.1(g).
(i) Distribution Agreement Conditions. The conditions precedent to the
Distribution (other than consummation of the Merger) set forth in Section 3.02
of the Distribution Agreement shall have been satisfied or waived.
7.2 Additional Conditions to Obligation of NSU. The obligation of NSU to
consummate the transactions contemplated hereby in accordance with the terms of
this Agreement is also subject to the fulfillment or waiver of the following
conditions:
(a) Representations and Compliance. The representations and warranties of
Michael set forth in Article 3 shall have been true and correct as of the date
hereof, and, except to the extent such representations and warranties are made
as of a specified date, shall be true and correct as of the Effective Date as if
made at and as of the Effective Date, except where the failure to be true and
correct would not have, or would not reasonably be expected to have, a Material
Adverse Effect on Michael. Michael shall in all material respects have performed
each obligation and agreement and complied with each covenant to be performed
and complied with by it hereunder at or prior to the Effective Date.
(b) Officers' Certificate. Michael shall have furnished to NSU a
certificate of the Chief Executive Officer and the Chief Financial Officer of
Michael, dated as of the Effective Date, in which such officers shall certify
that, to their best knowledge, they have no reason to believe that the
conditions set forth in Section 7.2(a) have not been fulfilled.
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(c) Secretary's Certificate. Michael shall have furnished to NSU (i) copies
of the text of the resolutions by which the corporate action on the part of
Michael necessary to approve this Agreement, the Certificate of Merger and the
transactions contemplated hereby and thereby were taken, (ii) a certificate
dated as of the Effective Date executed on behalf of Michael by its corporate
secretary or one of its assistant corporate secretaries certifying to NSU that
such copies are true, correct and complete copies of such resolutions and that
such resolutions were duly adopted and have not been amended or rescinded and
(iii) an incumbency certificate dated as of the Effective Date executed on
behalf of Michael by its corporate secretary or one of its assistant corporate
secretaries certifying the signature and office of each officer of Michael
executing this Agreement, the Certificate of Merger or any other agreement,
certificate or other instrument executed pursuant hereto by Michael.
(d) Shareholder Approval. This Agreement and the Merger, the New Articles,
the Reverse Stock Split and the Distribution shall have been approved by the
Requisite NSU Shareholder Vote.
(e) Fairness Opinion. Within five days prior to mailing the
Prospectus/Proxy Statement to the shareholders of NSU, NSU shall have received a
written opinion in a form reasonably acceptable to NSU from Goldsmith Agio &
Company (or another investment banking firm reasonably acceptable to NSU) to the
effect that the Merger and the Distribution, together, are fair from a financial
point of view to the holders of NSU Common Stock prior to the Effective Date.
(f) Dissenting Shares. The number of shares of NSU Common Stock with
respect to which the holders thereof have effectively dissented from the NSU
shareholder action contemplated hereby pursuant to the provisions of the MBCA
shall not exceed one percent (1%) of the issued and outstanding shares of NSU
Common Stock as of the record date for the meeting relating to such NSU
shareholder action.
7.3 Additional Conditions to Obligation of Michael. The obligation of
Michael to consummate the transactions contemplated hereby in accordance with
the terms of this Agreement is also subject to the fulfillment or waiver of the
following conditions:
(a) Representations and Compliance. The representations and warranties of
NSU set forth in Article 4 shall have been true and correct as of the date
hereof, and, except to the extent such representations and warranties are made
as of a specified date, shall be true and correct as of the Effective Date as if
made at and as of the Effective Date, except where the failure to be true and
correct would not have, or would not reasonably be expected to have, a Material
Adverse Effect on NSU. NSU shall in all material respects have performed each
obligation and agreement and complied with each covenant to be performed and
complied with by it hereunder at or prior to the Effective Date.
(b) Officers' Certificate. NSU shall have furnished to Michael a
certificate of the Chief Executive Officer and the Chief Financial Officer of
NSU, dated as of the Effective Date, in which such officers shall certify that,
to their best knowledge, they have no reason to believe that the conditions set
forth in Section 7.3(a) have not been fulfilled.
(c) Secretary's Certificate. NSU shall have furnished to Michael (i) copies
of the text of the resolutions by which the corporate action on the part of NSU
necessary to approve this Agreement, the Certificate of Merger, the
Distribution, the Reverse Stock Split, the election of the directors of the
Surviving Corporation pursuant to Section 2.1, the Distribution Agreement and
the transactions contemplated hereby and thereby were taken, (ii) certificates
dated as of the Effective Date executed on behalf of NSU by its corporate
secretary or one of its assistant corporate secretaries certifying to Michael
that such copies are true, correct and complete copies of such resolutions and
that such resolutions were duly adopted and have not been amended or rescinded
and (iii) an incumbency certificate dated as of the Effective Date executed on
behalf of NSU by its corporate secretary or one of its assistant corporate
secretaries certifying the signature and office of each officer of NSU executing
this Agreement, the Certificate of Merger or any other agreement, certificate or
other instrument executed pursuant hereto.
(d) Shareholder Approval. This Agreement and the Merger shall have been
approved by the Requisite Michael Shareholder Vote.
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(e) Accounting Matters. No event shall have occurred which, in the
reasonable opinion of Michael and concurred in by Grant Thornton LLP, would
prevent the Merger, the Reverse Stock Split and the Distribution from being
accounted as a business combination utilizing the reverse acquisition concept
with Michael being the accounting acquiror for accounting purposes under
generally accepted accounting principles.
(f) Fairness Opinion. Within five days prior to mailing the
Prospectus/Proxy Statement to the shareholders of Michael, Michael shall have
received a written opinion in a form reasonably acceptable to Michael from Piper
Jaffray Inc. (or another investment banking firm reasonably acceptable to
Michael) to the effect that the Merger is fair from a financial point of view to
Michael.
(g) Net Assumed Debt Certificate. NSU shall have furnished to Michael a
certificate of the Chief Financial Officer of NSU certifying the amounts of the
NSU Net Assumed Liabilities, the NSU Indebtedness, the Dissenting Shares
Holdback and the cash held by NSU as a Retained Asset at the Effective Time.
(h) Other Agreements and Resignations. Michael shall have received the
Orderly Disposition and Registration Rights Agreement and the Distribution
Agreement duly executed by the parties thereto. Each of the officers of NSU
immediately prior to the Effective Time shall deliver duly executed resignations
from their positions with NSU effective immediately after the Effective Time.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual consent of Michael and NSU, if the board of directors of each
so determines by vote of a majority of the members of its entire board;
(b) by either Michael or NSU, if any of the conditions to such party's
obligation to consummate the transactions contemplated in this Agreement shall
have become impossible to satisfy;
(c) by either Michael or NSU, if (i) the Merger and this Agreement is not
duly approved by the shareholders of each of Michael or NSU, including if a
shareholder meeting is not held as contemplated by the first sentence of Section
6.11, or (ii) the New Articles, the Reverse Stock Split and the Distribution are
not approved by the shareholders of NSU, including if a shareholder meeting is
not held as contemplated by the first sentence of Section 6.11;
(d) by either Michael or NSU if the Effective Date is not on or before
September 30, 1996 or such later date as Michael and NSU may mutually agree
(unless the failure to consummate the Merger by such date shall be due to the
action or failure to act of the party seeking to terminate this Agreement in
breach of such party's obligations under this Agreement);
(e) by NSU if the Average Price of Michael Common Stock is less than $11.00
per share;
(f) by Michael if the Average Price of Michael Common Stock is more than
$17.00 per share; or
(g) by Michael or NSU pursuant to Section 6.19(b) in accordance with the
provisions of Section 6.19(b).
Any party desiring to terminate this Agreement shall give written notice of
such termination and the reasons therefor to the other party.
8.2 Effect of Termination.
(a) In the event this Agreement is properly terminated (i) by NSU as
provided in Section 8.1(b) due to the failure to satisfy the condition under
Section 7.2(d), (ii) by Michael under Section 8.1(b) due to the failure of the
condition under Section 7.3(a), (b) or (c), (iii) by Michael or NSU pursuant to
Section 8.1(c) due to the failure of the shareholders of NSU to approve the
Merger, this Agreement, the New Articles, the Reverse Stock Split or the
Distribution, (iv) by NSU pursuant to Section 8.1(e), (v) by Michael pursuant to
Section 8.1(g), or (vi) by NSU as provided in Section 8.1(b) due to the failure
to satisfy the condition under
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<PAGE> 135
Section 7.2(f), then, within ten days after written demand from Michael, NSU
shall pay to Michael an amount equal to the out of pocket expenses incurred by
Michael in connection with the transactions contemplated by this Agreement,
including but not limited to the fees and expenses of Michael's attorneys,
accountants and investment banker, up to an aggregate of $500,000 payable
either, at the option of NSU, in immediately available funds or in shares of
Michael Common Stock having a fair market value (determined on the basis of the
average closing sales price of Michael Common Stock during the twenty (20)
trading days immediately preceding such termination) equal to such amount.
(b) In the event this Agreement is properly terminated (i) by Michael
pursuant to Section 8.1(b) due to the failure to satisfy the condition under
Section 7.3(d), (ii) by NSU under Section 8.1(b) due to the failure of the
condition under Section 7.2(a), (b) or (c), (iii) by Michael or NSU pursuant to
Section 8.1(c) due to the failure of the shareholders of Michael to approve the
Merger and this Agreement, (iv) by Michael pursuant to Section 8.1(f), (v) by
NSU pursuant to Section 8.1(g), or (vi) the transactions contemplated by this
Agreement are not consummated solely because Michael shall not have obtained the
necessary modifications to its material debt instruments as disclosed in
Schedule 3.2 or prepaid such debt instruments, then, within ten days after
written demand from NSU, Michael shall pay to NSU an amount equal to the out of
pocket expenses incurred by NSU in connection with the transactions contemplated
by this Agreement, including but not limited to the fees and expenses of NSU's
attorneys, accountants and investment banker, up to an aggregate of $500,000,
payable either, at the option of Michael, in immediately available funds or in
shares of Michael Common Stock having a fair market value (determined on the
basis of the average closing sales price of Michael Common Stock during the
twenty (20) trading days immediately preceding such termination) equal to such
amount.
Notwithstanding anything contained in this Agreement to the contrary, the
expense reimbursement provisions of this Section 8.2(a) or (b), shall be the
sole and exclusive remedies of the parties to this Agreement for any violation
or breach hereof and shall be in lieu of any and all claims that the
non-breaching party has, or might have at law or in equity.
8.3 Amendment. This Agreement may not be amended except by an instrument in
writing approved by the parties to this Agreement and signed on behalf of each
of the parties hereto.
8.4 Waiver. At any time prior to the Effective Date, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other party hereto or (b) waive compliance with any of the agreements of
the other party or with any conditions to its own obligations, in each case only
to the extent such obligations, agreements and conditions are intended for its
benefit. Any such extension or waiver shall only be effective if made in writing
and duly executed by the party giving such extension or waiver.
ARTICLE 9
GENERAL PROVISIONS
9.1 Public Statements. Neither Michael nor NSU shall make any public
announcement or statement with respect to the Merger, this Agreement, the
Reverse Stock Split, the Distribution or any related transactions without the
approval of the other party; provided, however, that either Michael or NSU may,
upon reasonable notice to the other party, make any public announcement or
statement that it believes is required by federal securities law. To the extent
practicable, each of Michael and NSU will consult with the other with respect to
any such public announcement or statement.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by fax, by
telecopier, by overnight delivery service, or by registered or certified
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<PAGE> 136
mail (postage prepaid and return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by it by like notice):
If to Michael:
Michael Foods, Inc.
324 Park National Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
Attn: President and Chief Executive Officer
with copies to:
Maun & Simon, PLC
2900 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-4133
Attn: Albert A. Woodward
If to NSU:
North Star Universal, Inc.
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
Attention: President and Chief Executive Officer
with copies to:
Dorsey & Whitney
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402
Attention: J. Andrew Herring
All such notices and other communications shall be deemed to have been duly
given as follows: when delivered by hand, if personally delivered; when
received, if delivered by registered or certified mail (postage prepaid and
return receipt requested); when receipt acknowledged, if faxed or telecopied;
and the next day delivery after being timely delivered to a recognized overnight
delivery service.
9.3 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
Sections and Articles of this Agreement unless otherwise stated. Words such as
"herein," "hereinafter," "hereof," "hereto," "hereby" and "hereunder," and word
of like import, unless the context requires otherwise, refer to this Agreement
(including the Exhibits and Schedules hereto). As used in this Agreement, the
masculine, feminine and neuter genders shall be deemed to include the others if
the context requires.
9.4 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
9.5 Miscellaneous. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties, with respect to the subject matter hereof; (b) shall be
governed in all respects, including validity, interpretation and effect, by the
internal laws of the State of Minnesota, without
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<PAGE> 137
giving effect to the principles of conflict of laws thereof; and (c) shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, but shall not be assignable by either party hereto
without the prior written consent of the other party hereto. This Agreement may
be executed in two or more counterparts which together shall constitute a single
agreement.
9.6 Non-Survival of Representations, Warranties and Covenants. The
representations and warranties of the parties set forth herein shall not survive
the consummation of the Merger, but covenants that specifically relate to
periods, activities or obligations subsequent to the Merger shall survive the
Merger. In addition, if this Agreement is terminated pursuant to Section 8.1,
the covenants contained in Section 6.3(b) and 8.2 shall survive such
termination.
9.7 Schedules. The Schedules and other disclosure referred to in this
Agreement shall be delivered as of the date hereof under cover of a letter from
the Chief Executive Officer or Chief Financial Officer of Michael or NSU, as the
case may be.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
9.9 Third Party Beneficiaries. Except as provided in the next following
sentence, each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto. The provisions of Section 6.18 are intended for the benefit of
Affiliates of NSU and Michael.
ARTICLE 10
DISPUTE RESOLUTION
10.1 Mediation and Binding Arbitration. If a dispute arises between NSU and
Michael as to the interpretation of this Agreement or any other agreement
entered into pursuant hereto, NSU and Michael agree to use the following
procedures, in lieu of either party pursuing other available remedies and as the
sole remedy, to resolve the dispute.
10.2 Initiation. A party seeking to initiate the procedures shall give
written notice to the other party, describing briefly the nature of the dispute.
A meeting shall be held between the parties within 10 days of the receipt of
such notice, attended by individuals with decision-making authority regarding
the dispute, to attempt in good faith to negotiate a resolution of the dispute.
10.3 Submission to Mediation. If, within 30 days after such meeting, the
parties have not succeeded in negotiating a resolution of the dispute, they
agree to submit the dispute to mediation in accordance with the Center for
Public Resources Model ADR Procedure -- Mediation of Business Disputes, as
modified herein, and to bear equally the costs of the mediation.
10.4 Selection of Mediator. The parties will jointly appoint a mutually
acceptable mediator, seeking assistance in such regard from the Center for
Public Resources or another mutually agreed-upon organization if they have been
unable to agree upon such appointment within 20 days from the conclusion of the
negotiation period.
10.5 Mediation and Arbitration. The parties agree to participate in good
faith in the mediation and negotiations related thereto for a period of 30 days
following the initial mediation session. If the parties are not successful in
resolving the dispute through the mediation by the end of such 30-day period,
then the parties agree to submit the matter to binding arbitration in accordance
with the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes, as modified herein, by a panel of three arbitrators, in
Minneapolis, Minnesota, selected in accordance with the provisions of Section
10.6 hereof. The arbitration shall be governed by the Rules of the American
Arbitration Association then in effect and as modified herein, and judgment upon
the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The arbitrators shall not, under any circumstances, have
any authority to award punitive, exemplary or
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<PAGE> 138
similar damages and may not, in any event, make any ruling, finding or award
that does not conform to the terms and conditions of this Agreement. Nothing
contained in this Article 10 shall limit or restrict in any way the right or
power of a party at anytime to seek injunctive relief in any court and to
litigate the issues relevant to such request for injunctive relief before such
court (i) to restrain the other party from breaching this Agreement or (ii) for
specific enforcement of this Article 10. The parties agree that any legal remedy
available to a party with respect to a breach of this Article 10 will not be
adequate and that, in addition to all other legal remedies, each party is
entitled to an order specifically enforcing this Article 10.
10.6 Selection of Arbitrators. The parties shall have 10 days from the end
of the mediation period to agree upon mutually acceptable neutral persons not
affiliated with either of the parties to act as arbitrators. If the panel of
arbitrators has not been selected within such time, the parties agree jointly to
request the Center for Public Resources or another mutually agreed-upon
organization to supply within 10 days a list of potential arbitrators with
qualifications as specified by the parties in the joint request. Within five
days of receipt of the list, the parties shall independently rank the proposed
candidates, shall simultaneously exchange rankings, and shall select as the
arbitrator the individual receiving the highest combined ranking who is
available to serve. Neither party nor the arbitrators may disclose the existence
or results of any arbitration under this Agreement or any evidence presented
during the course of arbitration without the prior consent of both parties,
except as required to fulfill applicable disclosure and reporting requirements,
or as otherwise required by law.
10.7 Cost of Arbitration. Each party shall bear its own costs incurred in
the arbitration. If either party refuses to submit to arbitration any dispute
required to be submitted to arbitration pursuant to this Article 10, and instead
commences any other proceeding, including litigation, then the party who seeks
enforcement of the obligation to arbitrate shall be entitled to its attorneys'
fees and costs incurred in any such proceeding.
IN WITNESS WHEREOF, NSU and Michael have caused this Agreement to be
executed on the date first written above by their respective officers.
MICHAEL FOODS, INC.
By /s/ GREGG A. OSTRANDER
------------------------------------
Gregg A. Ostrander
President and Chief Executive
Officer
NORTH STAR UNIVERSAL, INC.
By /s/ JEFFREY J. MICHAEL
------------------------------------
Jeffrey J. Michael
President and Chief Executive
Officer
NSU MERGER CO.
By /s/ JEFFREY J. MICHAEL
------------------------------------
Jeffrey J. Michael
President and Chief Executive
Officer
I-27
<PAGE> 139
STATE OF MINNESOTA
COUNTY OF HENNEPIN
ss.
The foregoing instrument was acknowledged before me this 21st day of
December, 1995 by Gregg A. Ostrander, President and Chief Executive Officer of
Michael Foods, Inc., a Delaware corporation, on behalf of the corporation.
/s/
--------------------------------------
Notary Public
[SEAL]
STATE OF MINNESOTA
COUNTY OF HENNEPIN
ss.
The foregoing instrument was acknowledged before me this 21st day of
December, 1995 by Jeffrey J. Michael, President and Chief Executive Officer of
North Star Universal, Inc., a Minnesota corporation, on behalf of the
corporation.
/s/
--------------------------------------
Notary Public
[SEAL]
STATE OF MINNESOTA
COUNTY OF HENNEPIN
ss.
The foregoing instrument was acknowledged before me this 21st day of
December, 1995 by Jeffrey J. Michael, President and Chief Executive Officer of
NSU Merger Co., a Delaware corporation, on behalf of the corporation.
/s/
--------------------------------------
Notary Public
[SEAL]
I-28
<PAGE> 140
EXHIBIT A
DISCOUNT FACTOR
<TABLE>
<CAPTION>
AMOUNT OF NSU NET ASSUMED LIABILITIES DISCOUNT FACTOR
- ------------------------------------------------------------------------------ ---------------
<S> <C>
More than $33,750,000 and less than
or equal to $38,000,000..................................................... 0.9000
More than $32,500,000 and less than
or equal to $33,750,000..................................................... 0.9025
More than $31,250,000 and less than
or equal to $32,500,000..................................................... 0.9050
More than $30,000,000 and less than
or equal to $31,250,000..................................................... 0.9075
More than $28,750,000 and less than
or equal to $30,000,000..................................................... 0.9100
More than $27,500,000 and less than
or equal to $28,750,000..................................................... 0.9125
More than $26,250,000 and less than
or equal to $27,500,000..................................................... 0.9150
More than $25,000,000 and less than
or equal to $26,250,000..................................................... 0.9175
$25,000,000................................................................... 0.9200
</TABLE>
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<PAGE> 141
EXHIBIT B
CERTIFICATE OF MERGER
OF
NSU MERGER SUB CO.
INTO
MICHAEL FOODS, INC.
Pursuant to Section 251 of the Delaware General Corporation Law, the
undersigned President and Secretary of MICHAEL FOODS, INC., a Delaware
corporation, hereby certify that:
1. The constituent corporations are: NSU Merger Sub Co., a Delaware
corporation, and Michael Foods, Inc., a Delaware corporation.
2. An Agreement and Plan of Reorganization has been adopted, approved,
executed, certified and acknowledged by each of the constituent
corporations in accordance with section 251(c) of the Delaware General
Corporation Law.
3. Michael Foods, Inc. shall be the surviving corporation.
4. The certificate of incorporation of Michael Foods, Inc. shall be
the certificate of incorporation of the surviving corporation.
5. The executed Agreement and Plan of Reorganization is on file at the
principal office of Michael Foods, Inc. at 5353 Wayzata Boulevard, 324 Park
National Building, Minneapolis, Minnesota 55416.
6. A copy of the Agreement and Plan of Reorganization will be
furnished by Michael Foods, Inc., on request and without cost, to any
stockholder of any constituent corporation.
IN WITNESS WHEREOF, Michael Foods, Inc. has caused this certificate to be
executed by Gregg A. Ostrander, its President and attested by Jeffrey M.
Shapiro, its Secretary, this day of , 1996.
MICHAEL FOODS, INC.
By
--------------------------------------
Gregg A. Ostrander, President
ATTEST:
By
- -----------------------------------------------------
Jeffrey M. Shapiro, Secretary
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<PAGE> 142
EXHIBIT C
DISTRIBUTION AGREEMENT
BY AND BETWEEN
NORTH STAR UNIVERSAL, INC.
AND
NEW HOLDING COMPANY, INC.
, 1996
<PAGE> 143
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS.......................................................... C-1
Section 1.01 General.............................................................. C-1
Section 1.02 Exhibits, etc........................................................ C-4
ARTICLE II REORGANIZATION AND RELATED TRANSACTIONS.............................. C-5
Section 2.01 Sequence of Events................................................... C-5
Section 2.02 Transfers of Assets; Assumption of Liabilities....................... C-5
Section 2.03 Elimination of Intercompany Accounts................................. C-5
Transfers Not Effected At or Prior to the Distribution; Transfers
Section 2.04 Deemed Effective as of the Distribution Date......................... C-5
Section 2.05 No Representations or Warranties..................................... C-6
Section 2.06 Conveyancing and Assumption Instruments.............................. C-6
Section 2.07 Tax Treatment........................................................ C-6
ARTICLE III THE DISTRIBUTION..................................................... C-7
Section 3.01 Cooperation Prior to the Distribution................................ C-7
Section 3.02 NSU Board Action; Conditions Precedent to the Distribution........... C-7
Section 3.03 The Distribution..................................................... C-8
Section 3.04 Fractional Shares.................................................... C-8
ARTICLE IV SPINCO ASSUMPTION OF CERTAIN NSU INDEBTEDNESS........................ C-8
Section 4.01 Assumption of Certain NSU Indebtedness............................... C-8
ARTICLE V INDEMNIFICATION...................................................... C-9
Section 5.01 Indemnification by Spinco............................................ C-9
Section 5.02 Indemnification by NSU............................................... C-9
Section 5.03 Procedure for Indemnification........................................ C-10
Section 5.04 Set-Off Rights....................................................... C-11
ARTICLE VI EMPLOYEE BENEFIT PLANS............................................... C-11
Section 6.01 The 401(k) Savings Plan.............................................. C-11
Section 6.02 Welfare Plans........................................................ C-12
Section 6.03 NSU Employees........................................................ C-12
Section 6.04 Other Liabilities and Obligations.................................... C-12
Section 6.05 Preservation of Rights To Amend or Terminate Plans................... C-12
ARTICLE VII TAX MATTERS.......................................................... C-12
Section 7.01 Allocation of Items of Income or Deduction for Reporting Purposes.... C-12
Section 7.02 Spinco Indemnification for Tax Periods Prior to Distribution Date.... C-12
NSU Liable for Filing and Payment of Spinco's Taxes Prior to
Section 7.03 Distribution Date.................................................... C-13
Spinco Liable for Filing and Payment of Its Own Taxes for Tax Periods
Beginning Prior to Distribution Date and Ending After Distribution
Section 7.04 Date................................................................. C-13
Spinco's Right to Make Section 172(b)(3) Election and Qualified Right
Section 7.05 to Subsequent Refund................................................. C-13
Scope of NSU's Power to Negotiate Settlement During Audit for Periods
Section 7.06 after the Merger Effective Date...................................... C-13
Section 7.07 Rights of Parties With Respect to an Asserted Tax Liability.......... C-13
Mutual Duty to Cooperate and Act in Good Faith With Respect to Filing
Section 7.08 or Amending of Returns, Claiming Refunds, or Conducting Audit........ C-14
ARTICLE VIII CERTAIN ADDITIONAL MATTERS........................................... C-15
Section 8.01 The Spinco Board..................................................... C-15
Section 8.02 Spinco Charter and By-Laws........................................... C-15
Section 8.03 NSU Long-Term Liabilities; Minimum Value of Spinco................... C-15
Section 8.04 Adjustment for Dissenting Shares Liability........................... C-15
</TABLE>
C-i
<PAGE> 144
<TABLE>
<S> <C> <C>
Section 8.05 NSU Covenants........................................................ C-16
ARTICLE IX ACCESS TO INFORMATION AND SERVICES................................... C-16
Section 9.01 Provision of Corporate Records....................................... C-16
Section 9.02 Access to Information................................................ C-16
Section 9.03 Provision of Services................................................ C-16
Section 9.04 Production of Witnesses.............................................. C-16
Section 9.05 Reimbursement........................................................ C-16
Section 9.06 Retention of Records................................................. C-17
Section 9.07 Confidentiality...................................................... C-17
ARTICLE X DISPUTE RESOLUTION................................................... C-17
Section 10.01 Mediation and Binding Arbitration.................................... C-17
Section 10.02 Initiation........................................................... C-17
Section 10.03 Submission to Mediation.............................................. C-17
Section 10.04 Selection of Mediator................................................ C-17
Section 10.05 Mediation and Arbitration............................................ C-17
Section 10.06 Selection of Arbitrators............................................. C-18
Section 10.07 Cost of Arbitration.................................................. C-18
ARTICLE XI MISCELLANEOUS........................................................ C-18
Section 11.01 Complete Agreement; Construction..................................... C-18
Section 11.02 Survival of Agreements............................................... C-18
Section 11.03 Expenses............................................................. C-18
Section 11.04 Governing Law........................................................ C-18
Section 11.05 Notices.............................................................. C-18
Section 11.06 Amendments........................................................... C-19
Section 11.07 Successors and Assigns............................................... C-19
Section 11.08 Termination.......................................................... C-19
Section 11.09 Subsidiaries......................................................... C-19
Section 11.10 No Third Party Beneficiaries......................................... C-19
Section 11.11 Titles and Headings.................................................. C-20
Section 11.12 Exhibits and Schedules............................................... C-20
Section 11.13 Legal Enforceability................................................. C-20
</TABLE>
C-ii
<PAGE> 145
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT, dated as of , 1996 (this
"Agreement"), is entered into by and between NORTH STAR UNIVERSAL, INC., a
Minnesota corporation ("NSU"), and NEW HOLDING COMPANY, INC., a Minnesota
corporation and a wholly owned subsidiary of NSU ("Spinco"). This Agreement is
intended to survive and continue after the "Merger" and the "Distribution" (as
such terms are hereinafter defined), and any reference to NSU in this Agreement
shall be deemed to include NSU from and after the consummation of the Merger and
the change of the name of NSU to "Michael Foods, Inc."
WHEREAS, NSU is a party to an Agreement and Plan of Reorganization dated
December 21, 1995 (the "Merger Agreement"), providing for the merger (the
"Merger") of NSU Merger Co. ("Merger Sub"), a Delaware corporation and a newly
formed and wholly-owned subsidiary of NSU, with and into Michael Foods, Inc., a
Delaware corporation ("Michael"), with Michael as the surviving corporation;
WHEREAS, Michael has required that, as a condition of the Merger, the
non-food businesses, including assets and liabilities, be separated from the
food business of NSU represented by the shares of common stock of Michael owned
by NSU;
WHEREAS, to satisfy this condition to the Merger, the parties hereto have
agreed that (i) immediately following the Merger, NSU will distribute to NSU
shareholders of record prior to the Merger, all assets of NSU other than (A) any
issued and outstanding shares of common stock, $.01 par value, of Merger Sub,
(B) the shares of common stock, $.01 par value, of Michael ("Michael Common
Stock") owned by NSU as of the date of the Merger Agreement, (C) a certain
amount of cash held by NSU at the time of the consummation of the Merger, and
(D) such other assets as to which the parties may mutually agree, and (ii) NSU
will be released from, or adequate provisions be made for all liabilities and
obligations of NSU other than as mutually agreed by the parties, so that after
giving effect to the Merger and such distribution, the business and operations
of NSU after the Merger will be the business and operations of Michael, except
for certain known and specified NSU indebtedness and certain obligations and
liabilities to be retained by NSU subsequent to the consummation of the Merger;
and
WHEREAS, NSU and Spinco have determined that it is necessary and desirable
to set forth the principal corporate transactions required to effect such
distribution and to set forth other agreements that will govern certain other
matters following such distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 General. Any term not otherwise defined herein shall have the
meaning ascribed to it in the Merger Agreement. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
Actual Payment: as defined in Section 8.03(b) of this Agreement.
Affiliate: as defined in Regulation 12b-2 promulgated under the Exchange
Act, as such Regulation is in effect on the date hereof.
Agent: the distribution agent for the shareholders of record of NSU on the
Record Date, as appointed by NSU, to distribute shares of Spinco Common Stock
pursuant to the Distribution (as defined below).
Code: the Internal Revenue Code of 1986, as amended, or any successor
legislation.
Commission: the Securities and Exchange Commission.
Contracts: as defined in Section 2.02 of this Agreement.
C-1
<PAGE> 146
Conveyancing and Assumption Instruments: collectively, the various
agreements, instruments and other documents, in form and substance mutually
satisfactory to NSU and Spinco, to be entered into to effect the transfer of
assets and the assumption of Liabilities in the manner contemplated by this
Agreement.
Credit Agreement: the Credit Agreement dated , 199 between NSU
and First Bank National Association, a national banking association, including
any amendments thereto and any replacement credit agreement or credit facility.
Dissenting Shares: as defined in Section 1.5 of the Merger Agreement.
Dissenting Shares Holdback: as defined in Section 1.1 of the Merger
Agreement.
Dissenting Shares Liability: as defined below under the definition of "NSU
Retained Liabilities."
Distribution: the distribution, on the Distribution Date, of all of the
outstanding shares of Spinco Common Stock by NSU to the holders of record of NSU
Common Stock on the Record Date, which distribution shall be deemed to have been
effected by NSU upon delivery by NSU to the Agent of an instruction directing
the Agent to effect the distribution of the Spinco Common Stock in accordance
with Section 3.03 of this Agreement and such distribution shall not be effected
nor deemed to have been effected until after the Effective Time.
Distribution Date: the Merger Effective Date; provided, however, that the
Distribution shall not occur until after the Effective Time.
Eagle Guaranty: the obligations of NSU under that certain Guaranty
Agreement dated May 1, 1989 between NSU and American National Bank & Trust
Company pursuant to which NSU guaranteed the payment of the principal of,
premium, if any, and interest on $1,470,000 City of Welcome, Minnesota
Industrial Development Revenue Bonds, Series 1989.
Effective Time: as defined in Section 2.1(d) of the Merger Agreement.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Exchange Ratio: the ratio of one share of Spinco Common Stock for each
shares of NSU Common Stock (outstanding on the Record Date), or such
other ratio determined by NSU and Spinco to be the number of shares (or fraction
of a share) of Spinco Common Stock to be distributed in the Distribution for
each share of NSU Common Stock (outstanding on the Record Date).
IRS: the Internal Revenue Service.
Liabilities: any and all debts, liabilities, accounts payable, Taxes,
claims and other obligations, absolute or contingent, mature or not mature,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising (unless otherwise specified in this Agreement), including all costs and
expenses relating thereto, and including, without limitation, those debts,
liabilities and obligations arising under any law, rule, regulation, or any
actual or threatened action, suit, proceeding or investigation by or before any
court, any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal, any order or consent decrees of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
Merger: as defined in the preambles of this Agreement.
Merger Agreement: as defined in the preambles of this Agreement.
Merger Effective Date: the date, pursuant to the terms of the Merger
Agreement, on which the Merger is effective.
Michael: as defined in the first paragraph of this Agreement.
Michael Common Stock: as defined in Section 1.1 of the Merger Agreement.
NSU: as defined in the first paragraph of this Agreement.
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NSU Assumed Liabilities: the NSU Indebtedness and the NSU Retained
Liabilities.
NSU Board: the Board of Directors of NSU prior to the Merger Effective
Date.
NSU Common Stock: the Common Stock, par value $1.00 per share, of NSU,
prior to the Merger Effective Date.
NSU Indebtedness: indebtedness (principal and accrued interest) represented
by NSU's outstanding subordinated debentures and subordinated extendable and
fixed time certificates and the NSU indebtedness owing pursuant to the Credit
Agreement.
NSU Long-Term Liabilities: the Liability of NSU relating to the U.K. Leases
and the Eagle Guaranty.
NSU Retained Assets: the following assets:
(i) such amount of cash as NSU may, in its sole discretion, determine
to hold at the Merger Effective Date;
(ii) 7,354,950 shares of Michael Common Stock owned by NSU as of the
date of this Agreement;
(iii) the capital stock of Merger Sub;
(iv) the rights of NSU under this Agreement, the Merger Agreement and
the Orderly Disposition and Registration Rights Agreement; and
(v) any and all net operating loss carryforwards and other Tax
attributes properly allocable to NSU following the Merger Effective Date in
accordance with the relevant provisions of the Code.
NSU Retained Liabilities: the following Liabilities:
(i) any Liability arising from any NSU shareholders who have
effectively dissented from the NSU shareholder action in connection with
the Merger and the Distribution in accordance with Section 471 and 473 of
the MBCA ("Dissenting Shares Liability");
(ii) any Liability of NSU under this Agreement arising after the
Merger Effective Date;
(iii) any Liability of NSU under the Merger Agreement arising after
the Merger Effective Date; and
(iv) any Liability of NSU under the Orderly Disposition and
Registration Rights Agreement arising after the Merger Effective Date.
NSU Transferred Assets: all assets of NSU other than the NSU Retained
Assets, specifically including Spinco rights under this Agreement (including
Spinco's rights pursuant to Section 8.05 and Section 5.04).
NSU Transferred Liabilities: all Liabilities of NSU (i) arising at any time
prior to the Merger Effective Date, other than the NSU Assumed Liabilities, or
(ii) arising as a result of the Distribution (other than any liability of NSU
for Taxes resulting from a breach of Section 2.07 by NSU after the Merger
Effective Date).
Orderly Disposition and Registration Rights Agreement: the Orderly
Disposition and Registration Rights Agreement, dated December 21, 1995, between
NSU and certain shareholders of NSU in the form of Exhibit E to the Merger
Agreement.
Record Date: the close of business on the date to be determined by the NSU
Board as the record date for the Distribution, which date shall be prior to the
Merger Effective Date.
Registration Statement: that certain registration statement on Form S-1
registering under the Securities Act the Spinco Common Stock to be distributed
in the Distribution.
Release Date: the date upon which Spinco shall have taken one of the
following actions with respect to each of the NSU Long-Term Liabilities:
(i) obtained a release and discharge of the NSU Long-Term Liabilities;
(ii) provided evidence to NSU, after the Merger Effective Date, of the
satisfaction of the NSU Long-Term Liabilities in a form reasonably
satisfactory to NSU; or
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(iii) obtained an irrevocable stand-by letter of credit (the "L/C")
approved as to issuer, form and content by NSU (which approval will not be
unreasonably withheld), to be issued in favor of NSU for an amount at least
equal to the present value of any remaining Liability with respect to the
NSU Long-Term Liabilities, such present value calculation to be based on a
discount rate of 6%.
Securities Act: the Securities Act of 1933, as amended.
Spinco: as defined in the first paragraph of this Agreement.
Spinco Board: the Board of Directors of Spinco.
Spinco By-Laws: the By-Laws of Spinco, substantially in the form of Exhibit
A to be in effect at the Distribution Date.
Spinco Charter: the Restated Articles of Incorporation of Spinco,
substantially in the form of Exhibit B, to be in effect at the Distribution
Date.
Spinco Common Stock: the Common Stock, par value $.01 per share, of Spinco.
Spinco Employee: any individual who, prior to the Merger Effective Date,
was employed by NSU or any Subsidiary of NSU and who, on or after the Merger
Effective Date, or otherwise in connection with the Distribution, is employed by
Spinco or a Subsidiary of Spinco.
Subsidiary: with respect to any entity shall mean each corporation in which
such entity owns directly or indirectly fifty percent or more of the voting
securities of such corporation and shall, unless otherwise indicated, be deemed
to refer to both direct and indirect subsidiaries of such entity.
Taxes: any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, environmental taxes, customs duties, capital
stock, franchise, employees' income withholding, foreign or domestic
withholding, social security, unemployment, disability, workers' compensation,
employment-related insurance, real property, personal property, sales, use,
transfer, value added, alternative or add-on minimum or other tax, fee,
assessment or charge of any kind whatsoever including any interest, penalties or
additions to any Tax or additional amounts in respect of the foregoing.
Transfer Effective Date: the date, as determined by the NSU Board, on which
the transfers of assets by NSU to Spinco and the assumption of liabilities by
Spinco, as described in Section 2.02 shall be effective, which in any case shall
be prior to the Merger Effective Date.
U.K. Leases: (i) the Lease of Unit 4 Bracknell Business Centre, Downmill
Road, Bracknell, Berkshire, United Kingdom dated August 1, 1984 between
Queensgate Developments Limited and The Burton Group Public Limited Company and
assigned to C.E. Services (Europe) Ltd. (f.k.a. Landmark Communications Services
Limited) guaranteed by C.E. Services, Inc. (as the successor in interest to
Landmark Communications Services, Inc.) pursuant to a License to Assign dated
March 15, 1990 and assumed by NSU in connection with the Stock Purchase
Agreement by and between Amdahl Corporation and NSU dated May 5, 1995 and
pursuant to the terms of an Assumption Agreement dated , 1995
between NSU and Queensgate Developments Limited, and (ii) the Lease of Unit 5
Bracknell Business Centre, Downmill Road, Bracknell, Berkshire, United Kingdom
dated March 22, 1985, between Benton Nominees Limited and Robert David Grant and
Susan Margaret Grant trading as Grants Electrical Supplies and assigned to C.E.
Services (Europe) Ltd. (f.k.a. Landmark Communications Services Limited) and
guaranteed by Richard Charles Jones and Dennis Leonard Western pursuant to a
License to Assign dated June 28, 1991 and assumed by NSU in connection with a
Stock Purchase Agreement by and between Amdahl Corporation and NSU dated May 5,
1995 and pursuant to the terms of an Assumption Agreement dated ,
1995 between NSU and Benton Nominees Limited.
Section 1.02 Exhibits, etc. References to an "Exhibit" or to a "Schedule"
are, unless otherwise specified, to one of the Exhibits or Schedules attached to
this Agreement, and references to a "Section" or an "Article" are, unless
otherwise specified, to one of the Sections or Articles of this Agreement.
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ARTICLE II
REORGANIZATION AND RELATED TRANSACTIONS
Section 2.01 Sequence of Events. It is the intention of the parties hereto
that the transactions contemplated by this Article II shall, to the extent
practicable, be effected in the order in which such transactions are set forth
in this Article II.
Section 2.02 Transfers of Assets; Assumption of Liabilities. (a) Subject to
the terms and conditions of this Agreement, effective at the start of business
on the Transfer Effective Date:
(i) NSU shall contribute and transfer to Spinco or a Spinco
Subsidiary, as appropriate, all of NSU's right, title and interest in and
to all of the NSU Transferred Assets.
(ii) NSU shall assign and transfer, and Spinco shall assume, all of
NSU's rights, benefits and Liabilities arising pursuant to and under all
contracts, agreements, real and personal property leases, licenses,
instruments, arrangements and commitments (collectively, "Contracts")
entered into or made by NSU prior to the Merger Effective Date, other than#
the Contracts relating to the NSU Assumed Liabilities (the "Assumed
Contracts"); provided, however, that no Assumed Contract shall be assigned
contrary to law or the terms of such Assumed Contract and, with respect to
the Assumed Contracts that cannot be assigned or novated to Spinco on the
Transfer Effective Date, the performance obligations of NSU thereunder
shall, unless not permitted by such Assumed Contract, be subcontracted or
subleased to Spinco until such Assumed Contract has been fully performed by
Spinco or assigned or novated. NSU and Spinco shall use reasonable efforts
to obtain all necessary consents and Spinco shall take all necessary
actions to perform and complete all Assumed Contracts in accordance with
their terms even if neither assignment, novation, subcontracting nor
subleasing is permitted by the other party. As provided in Article V
hereof, Spinco shall indemnify NSU from and against any Liabilities under
the Assumed Contracts. NSU covenants and agrees that it shall promptly pay
over to Spinco any amounts received by NSU after the Transfer Effective
Date as a result of the performance by Spinco of any of the Assumed
Contracts.
(iii) Spinco shall assume and agrees to pay, perform or discharge all
the NSU Transferred Liabilities.
(b) Whether or not all of the NSU Transferred Assets or the NSU Transferred
Liabilities shall have been legally transferred to Spinco as of the Transfer
Effective Date, NSU and Spinco agree that, as of the Transfer Effective Date,
Spinco shall have, and shall be deemed to have acquired, complete and sole
beneficial ownership over all the NSU Transferred Assets together with all of
NSU's rights, powers and privileges incident thereto, and shall be deemed to
have assumed the NSU Transferred Liabilities and all of NSU's duties,
obligations and responsibilities incident thereto.
Section 2.03 Elimination of Intercompany Accounts. All intercompany
receivables, payables and loans in existence as of the Merger Effective Date
between NSU, on the one hand, and any NSU Subsidiary, on the other hand (other
than accounts, if any, relating to intercompany contractual or other obligations
which are to survive the Distribution as provided herein) shall be eliminated,
as of the Merger Effective Date, without the transfer of cash, by dividend or
capital contributions, as appropriate.
Section 2.04 Transfers Not Effected At or Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date. To the extent that any
transfers and assumptions contemplated by this Article II shall not have been
consummated on or prior to the Transfer Effective Date, the parties shall
cooperate to effect such transfers and assumptions as promptly following the
Transfer Effective Date as shall be practicable, it nonetheless being agreed and
understood by the parties that no party shall be liable in any manner to any
other party for any failure of any of the transfers contemplated by this Article
II to be consummated prior to the Transfer Effective Date and that this Section
2.04 shall in no way affect the indemnification obligations of the parties
pursuant to Article V. Subject to the provisions of Section 3.02, nothing herein
shall be deemed to require the transfer of any assets or the assumption of any
Liabilities which by their terms or by operation of law cannot be transferred or
assumed; provided that Spinco shall indemnify NSU against all NSU Transferred
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Liabilities pursuant to Section 5.01. In the event that any such transfer of the
NSU Transferred Assets (other than capital stock of corporations to be
transferred hereunder) or assumption of the NSU Transferred Liabilities has not
been consummated, effective as of and after the Transfer Effective Date (i) NSU
shall thereafter hold such assets for the benefit of Spinco (at the expense of
Spinco) and retain any such Liabilities for the account of Spinco, and take such
other action as may be reasonably requested by Spinco, at Spinco's expense, in
order to place such party, insofar as reasonably possible, in the same position
as would have existed had such asset or Liability been transferred as of the
Transfer Effective Date, (ii) NSU shall, at Spinco's expense, continue to be
bound under any agreements relating to the NSU Transferred Assets or NSU
Transferred Liabilities that cannot be so transferred, and (iii) unless not
permitted by law, Spinco shall pay, perform and discharge fully all obligations
of NSU thereunder from and after the Transfer Effective Date and indemnify NSU
for all indemnifiable losses arising out of such performance by Spinco pursuant
to the provisions of Article V hereto. NSU shall, without further consideration
therefor, pay and remit to Spinco promptly all monies, rights and other
considerations received in respect of any such performance. NSU shall exercise
its rights and options under any such agreements relating to the NSU Transferred
Assets or NSU Transferred Liabilities only as reasonably directed by Spinco, and
at Spinco's expense. As and when any such asset or liability becomes
transferable, such transfer shall be effected forthwith. Notwithstanding the
foregoing, the parties shall use their best efforts to obtain all consents and
approvals, to enter into all amendatory agreements and to make all filings and
applications which may be required for the consummation of the transactions
contemplated by this Agreement, including, without limitation, all applicable
regulatory filings or consents under federal or state environmental laws.
Section 2.05 No Representations or Warranties. Spinco understands and
agrees that NSU is not, in this Agreement or in any other agreement or document
contemplated by this Agreement or otherwise, representing or warranting in any
way (i) as to the value or freedom from encumbrance of, or any other matter
concerning, any NSU Transferred Assets or (ii) as to the legal sufficiency to
convey title to any such assets or the execution, delivery and filing of this
Agreement, including, without limitation, any Conveyancing or Assumption
Instruments, it being agreed and understood that all such assets are being
transferred AS IS, WHERE IS, and that the party to which such assets are to be
transferred hereunder shall bear the economic and legal risk that any
conveyances of such assets shall prove to be insufficient or that Spinco or any
of its Subsidiaries' title to any such assets shall be other than good and
marketable and free from encumbrances. Similarly, each party hereto understands
and agrees that no party hereto is, in this Agreement or in any other agreement
or document contemplated by this Agreement or otherwise, representing or
warranting in any way that the obtaining of any consents or approvals, the
execution and delivery of any amendatory agreements and the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the requirements of any or all
applicable laws or judgments, it being agreed and understood that the party to
which any assets are transferred shall bear the economic and legal risk that any
necessary consents or approvals are not obtained or that any requirements of
laws or judgments are not complied with.
Section 2.06 Conveyancing and Assumption Instruments. In connection with
the transfers of the NSU Transferred Assets other than capital stock and the
assumptions of the NSU Transferred Liabilities contemplated by this Agreement,
the parties shall execute or cause to be executed by the appropriate entities
the Conveyancing and Assumption Instruments in such forms as the parties shall
agree. The transfer of capital stock shall be effected by means of delivery of
stock certificates and executed stock powers and notation on the stock record
books of the corporation.
Section 2.07 Tax Treatment. During the two year period following the Merger
Effective Date, NSU shall not, nor shall it permit Michael to do any of the
following, and neither of them has any plan or intention to:
(a) liquidate Michael;
(b) merge Michael with or into another corporation, unless Michael is
the surviving corporation and the merger is not treated for tax purposes as
a sale or other disposition of Michael common stock;
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(c) sell any shares of Michael Common Stock or cause Michael to issue
any of shares of Michael Common Stock to any party other than NSU; or
(d) sell any assets of NSU to any third party not otherwise an
affiliate of the foregoing, except for (i) sales in the ordinary course of
business or (ii) sales of assets if, after giving effect to such sales,
Michael will retain at least 90% of the fair market value of its gross
assets in active trades or businesses within the meaning of Section 355 of
the Code.
provided, however, NSU or Michael may undertake any of the actions listed above
if (i) Spinco consents thereto or (ii) NSU obtains either a tax opinion or a
favorable private letter ruling from the Internal Revenue Service, in each case
reasonably satisfactory to Spinco, to the effect that the actions to be
undertaken would not adversely affect the tax free nature of the Merger or the
Distribution to all of the parties thereto. The shareholders of record of NSU on
the Record Date shall be third party beneficiaries of the provisions of this
Section 2.07.
ARTICLE III
THE DISTRIBUTION
Section 3.01 Cooperation Prior to the Distribution. Prior to the Merger
Effective Date:
(a) NSU and Spinco shall prepare and shall use all reasonable efforts to
cause the Registration Statement to become effective under the Securities Act.
Once declared effective under the Securities Act, NSU shall mail to the holders
of NSU Common Stock the prospectus included in the Registration Statement, which
shall set forth appropriate disclosure concerning Spinco, the Distribution and
other matters. NSU and Spinco shall also prepare, and Spinco shall file with the
Commission, a Form 8 -A, to register the Spinco Common Stock under the Exchange
Act. NSU and Spinco shall use all reasonable efforts to cause the Form 8-A to
become effective under the Exchange Act.
(b) NSU and Spinco shall cooperate in preparing, filing with the Commission
and causing to become effective any registration statements or amendments
thereof which are appropriate to reflect the establishment of, or amendments to,
any employee benefit and other plans contemplated by Article VI.
(c) NSU and Spinco shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the Distribution and the
other transactions contemplated by this Agreement.
(d) NSU and Spinco shall prepare, and Spinco shall file and pursue, an
application to permit listing of the Spinco Common Stock on the NASDAQ National
Market.
Section 3.02 NSU Board Action; Conditions Precedent to the
Distribution. The NSU Board shall, in its discretion, establish the Record Date,
the Transfer Effective Date and the Distribution Date (which shall be the same
as the Merger Effective Date) and any appropriate procedures in connection with
the Distribution. The Distribution is expressly conditioned on the prior
consummation of the Merger. Additionally, in no event shall the Distribution
occur (i) if at the Distribution Date NSU shall not have received an opinion of
tax counsel or a private letter ruling from the IRS to the effect that the
Distribution will qualify as a tax-free spin-off under Section 355 of the Code,
and (ii) unless prior to such time the following conditions shall have been
satisfied or waived by the parties hereto:
(a) the transactions contemplated by Sections 2.02 hereof, shall have been
consummated in all material respects;
(b) the Spinco Common Stock shall have been approved for quotation on the
NASDAQ National Market or listing on a national securities exchange, subject to
official notice of issuance;
(c) the Spinco Board, comprised as contemplated by Section 8.01, shall have
been elected by NSU, as sole shareholder of Spinco, and the Spinco Charter and
Spinco ByLaws shall have been adopted and shall be in effect;
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(d) the Registration Statement shall have been declared effective by the
Commission and the Form 8-A relating to the shares of Spinco Common Stock to be
distributed in the Distribution shall have become effective under the Exchange
Act; and
(e) all conditions precedent to the obligations of NSU and Michael under
the Merger Agreement (other than consummation of the Distribution) shall have
been satisfied or waived and the Merger shall have been consummated.
The satisfaction or waiver of such conditions shall create an obligation on the
part of NSU to effect the Distribution on the Distribution Date.
Section 3.03 The Distribution. On or prior to the Distribution Date, NSU
shall deliver to the Agent the certificate for all of the outstanding shares of
Spinco Common Stock which are owned by NSU. On the Distribution Date, after the
Effective Time of the Merger, NSU shall deliver to the Agent an instruction to
distribute as promptly as practicable following the Distribution Date to each
holder of record of NSU Common Stock on the Record Date stock certificates
evidencing such number of shares of Spinco Common Stock equal to the product of
the Exchange Ratio times the number of shares of NSU Common Stock held of record
by such holder on the Record Date and cash in lieu of any fractional share of
Spinco Common Stock obtained in the manner provided in Section 3.04 hereof. If
the number of outstanding shares of Spinco Common Stock exceeds the amount to be
distributed in the Distribution, then the remaining shares shall be deemed to
have been contributed by NSU to the capital of Spinco and retired and canceled.
Spinco agrees to provide to the Agent sufficient certificates in such
denominations as the Agent may request in order to effect the Distribution. All
of the shares of Spinco Common Stock issued in the Distribution shall be fully
paid, nonassessable and free of preemptive rights. The Distribution shall, for
all purposes under this Agreement, be deemed to have been effected at the time
NSU delivers to the Agent the instruction directing the Agent to distribute the
certificates evidencing Spinco Common Stock and cash in lieu of fractional
shares.
Section 3.04 Fractional Shares. No certificate or scrip representing
fractional shares of Spinco Common Stock shall be issued as part of the
Distribution, and in lieu of receiving fractional shares each holder of NSU
Common Stock who would otherwise be entitled to receive a fractional share of
Spinco Common Stock pursuant to the Distribution will receive cash for such
fractional share. NSU and Spinco agree that NSU shall instruct the Agent to
determine the number of whole shares and fractional shares of Spinco Common
Stock allocable to each holder of record of NSU Common Stock as of the Record
Date, to aggregate all such fractional shares into whole shares and sell the
whole shares obtained thereby in the open market pursuant to Rule 236 under the
Securities Act, if available, at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests and to
distribute to each such holder such holder's ratable share of the total proceeds
of such sale. Spinco shall bear the costs of commissions incurred in connection
with such sale. If the Agent is unable to sell such shares in the open market
pursuant to Rule 236, Spinco will pay to such holders of NSU Common Stock in
lieu of any fractional share or amount of cash determined by multiplying (a) the
average closing price per share of Spinco Common Stock on the NASDAQ National
Market during the five days following the Distribution Date times (b) the
fractional share interest to which such holder would otherwise be entitled.
ARTICLE IV
SPINCO ASSUMPTION OF CERTAIN NSU INDEBTEDNESS
Section 4.01 Assumption of Certain NSU Indebtedness. Spinco and NSU shall,
on or prior to the Distribution Date, to the extent required under any indenture
with respect to any of the outstanding debentures or any of the outstanding
subordinated extendable or fixed time certificates, execute and deliver
supplemental indentures or other agreements or instruments evidencing Spinco's
assumption of NSU's obligations with respect to such outstanding debentures and
subordinated extendable and fixed time certificates; provided, however, that as
provided herein, and as contemplated by the Merger Agreement, as between NSU and
Spinco, the NSU Indebtedness is not an NSU Transferred Liability and NSU shall
be responsible for the payment in full, in accordance with the terms thereof of
all of the NSU Indebtedness and
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shall indemnify, pursuant to Section 5.02 of this Agreement, Spinco for any and
all Liabilities with respect to the NSU Indebtedness.
ARTICLE V
INDEMNIFICATION
Section 5.01 Indemnification by Spinco.
(a) From and after the Merger Effective Date, Spinco shall indemnify,
defend, assume and hold harmless NSU, Michael, all Michael Subsidiaries and
Merger Sub and any of them (together, the "NSU Indemnified Parties") from and
against: (i) all Liabilities (other than the NSU Assumed Liabilities) of NSU or
any NSU Subsidiary (other than Michael and its Subsidiaries), including any
Subsidiary owned by NSU prior to the Merger Effective Date but not owned by NSU
on the Merger Effective Date, arising out of: (A) the NSU Transferred
Liabilities, specifically including the Assumed Contracts, and (B) the
transactions contemplated under this Agreement, including the Distribution and
any Taxes as a result of the Distribution (other than (X) any liabilities
resulting from any breach by NSU, after the Merger Effective Date, of this
Agreement, (Y) any liability of NSU for Taxes resulting from a breach by NSU,
after the Merger Effective Date, of Section 2.07, and (Z) obligations, after the
Merger Effective Date, expressly assumed by NSU hereunder); (ii) all Liabilities
arising from any claim made by any shareholder of Spinco on or after the
Distribution Date or by any shareholder or former shareholder of NSU prior to
the Merger Effective Date relating to any act or omission of NSU on or prior to
the Merger Effective Date in connection with the Merger or any of the other
transactions as contemplated by the Merger Agreement; (iii) all Liabilities
assumed by Spinco pursuant to Article VI; (iv) all Liabilities of Spinco or any
Subsidiary of Spinco arising out of transactions or events entered into or
occurring after the Merger Effective Date, or any action or inaction, including
but not limited to, contracts, commitments and litigation, with respect to,
entered into or based upon transactions or events occurring after the Merger
Effective Date with respect to Spinco or any Subsidiary of Spinco (other than
the NSU Assumed Liabilities); (v) any breach of this Agreement by Spinco or any
Subsidiary of Spinco after the Merger Effective Date; and (vi) damages, costs,
and expenses including attorney's fees incurred in defending and settling claims
for such Liabilities.
(b) The obligations to indemnify the NSU Indemnified Parties shall be
unconditional and shall not be subject to any claim of setoff, contribution or
waiver, except as provided in Section 5.04.
Section 5.02 Indemnification by NSU.
(a) From and after the Merger Effective Date, NSU shall indemnify, defend,
assume and hold harmless Spinco and any Spinco Subsidiary and any of them
(together, the "Spinco Indemnified Parties") from and against: (i) all
Liabilities of NSU, Michael or any Subsidiary of NSU or Michael arising out of
transactions or events entered into or occurring after the Merger Effective
Date, or any action or inaction, including but not limited to, contracts,
commitments and litigation, with respect to, entered into or based upon
transactions or events occurring after the Merger Effective Date with respect to
NSU, Michael, any Subsidiary of NSU after the Merger Effective Date or any
Subsidiary of Michael, other than any Liability arising out of the NSU
Transferred Liabilities, including the Assumed Contracts; (ii) all Liabilities
relating to the NSU Assumed Liabilities; (iii) all Liabilities of Michael or any
Subsidiary of Michael arising before, on or after the Merger Effective Date;
(iv) all Liabilities arising from any claim made by any current or former
Michael shareholder or shareholder of NSU after the Merger Effective Date who
was a Michael shareholder immediately prior to the Merger Effective Date
relating to any act or omission of Michael in connection with the Merger or any
of the other transactions contemplated in the Merger Agreement or this
Agreement; (v) any breach of this Agreement by NSU after the Merger Effective
Date; and (vi) damages, costs and expenses including attorney's fees incurred in
defending and settling claims for such obligations, expenses or Liabilities.
(b) The obligations to indemnify the Spinco Indemnified Parties shall be
unconditional and shall not be subject to any claim of setoff, contribution or
waiver, except as provided herein.
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Section 5.03 Procedure for Indemnification.
(a) The Spinco Indemnified Parties or the NSU Indemnified Parties (each
referred to hereinafter as an "Indemnified Party"), as the case may be, shall
promptly give notice to the indemnifying party hereunder (the "Indemnifying
Party") after obtaining knowledge of any claim, demand or request for payment
against any Indemnified Party for any Liabilities indemnifiable hereunder and
shall permit the Indemnifying Party to pay or assume the defense of such
Liability, and any litigation arising from such Liability. Notwithstanding the
foregoing notice requirement, the right to indemnification hereunder shall not
be affected by the failure of the party seeking indemnification to give such
notice or any delay by such party in giving such notice unless, and only to the
extent that, the rights and remedies of the Indemnifying Party shall have been
prejudiced as a result of the failure to give, or the delay in giving, such
notice. The failure by an Indemnifying Party to notify the Indemnified Party of
its election to defend any such Liability within ten (10) days after notice
thereof shall have been given to the Indemnifying Party, shall be deemed a
waiver by the Indemnifying Party of its right to defend such Liability.
(b) If an Indemnifying Party assumes the defense of any Liability and any
litigation that results from such Liability, then the obligations of the
Indemnifying Party as to such litigation shall include employing counsel
reasonably satisfactory to the Indemnified Party, taking all steps necessary in
the defense or settlement of such litigation and holding the Indemnified Party
harmless from and against any and all claims and expenses caused by or arising
out of any settlement approved by the Indemnified Party or any judgment in
connection with such litigation. Without the prior written consent of the
Indemnified Party, the Indemnifying Parties shall not, in the defense of any
such litigation, consent to the entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof, the giving by
the claimant or the plaintiff to the Indemnified Party of a full release, in
form reasonably satisfactory to the Indemnified Party, from all liability in
respect of such litigation. The Indemnified Party shall be entitled to
participate in the defense of any litigation at its own expense. If the
defendants in any such action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to the Indemnifying Party, the Indemnified Party
shall have the right, at the expense of the Indemnifying Party, to select
separate counsel reasonably satisfactory to the Indemnifying Party to assume
such additional legal defenses, and to otherwise participate in the defense of
such action on behalf of the Indemnified Party.
(c) If the Indemnifying Party does not assume the defense of any Liability
within ten (10) days after the Indemnified Party gives notice thereof to the
Indemnifying Party, then the Indemnified Party may defend against such Liability
and any litigation with respect thereto, in such manner as it deems appropriate
and the Indemnified Party may settle any such litigation on such terms as it
deems appropriate and the Indemnifying Party shall, in accordance with the
provisions of Sections 5.01 or 5.02, as the case may be, reimburse the
Indemnified Party for the amount of such settlement and for all losses and
expenses, including attorney's fees, incurred by the Indemnified Party in
connection with the defense of such Liability.
(d) The Indemnified Party and the Indemnifying Party agree to cooperate
with each other in resolving or attempting to resolve any claim as to which
indemnification is sought under this Agreement and will permit the other party
access to all books and records which might be useful for such purpose during
normal business hours and at the place where such books and records are normally
kept. The Indemnified Party and the Indemnifying Party further agree to make
available, at reasonable times, such of their respective employees, officers and
agents who may have knowledge of matters relating to any claim arising out of
this agreement for the purpose of providing testimony or assisting in the
preparation or prosecution of a defense to any claim by a third party as to
which indemnification is sought under this Agreement.
(e) Any dispute arising between the parties hereto as to the obligations
under this Article V shall be resolved pursuant to Article X hereto. If there is
no dispute with respect to any payment under this Article V from an Indemnifying
party to an Indemnified Party, then within ten (10) days after written demand
for such payment by the Indemnified Party, the Indemnifying Party shall pay to
the Indemnified Party the amount of any loss, expense, damage or other payment
suffered, incurred or made by the Indemnified Party against which the
Indemnified Party is indemnified by the Indemnifying Party under this Article V.
In the event the
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Indemnifying Party fails to pay such undisputed amount within said ten (10) day
period, or it is determined pursuant to the provisions of Article X that the
Indemnifying Party is obligated to pay an amount which it had previously
disputed, the Indemnified Party shall be entitled to collect the following from
the Indemnifying Party: (i) interest from the date of the Indemnified Party's
demand for payment on the amount owing to the Indemnified Party at the rate
equal to the reference rate as publicly announced from time to time by First
Bank National Association plus two (2) percentage points, compounded monthly,
until the full amount owing, including any interest, has been paid in full with
all payments being applied first against accrued and unpaid interest, and (ii)
all costs and expenses, including reasonable attorneys fees, incurred by the
Indemnified Party in collecting the amounts owing from the Indemnifying Party
under this Article V.
Section 5.04 Set-Off Rights. If and when, as a result of the net operating
loss carryforwards properly allocable to NSU from all Tax periods prior to or
ending on the Merger Effective Date, NSU unconditionally realizes a benefit in
the form of a reduction in the federal or state income Taxes which NSU would
otherwise be obligated to pay, Spinco may set-off the amount of any such Tax
savings against any Liability of Spinco under this Agreement (including the
indemnification obligations under Section 5.01) or, in the event Spinco has
already made payments pursuant to its indemnification obligations hereunder, NSU
will reimburse Spinco for payments previously made by Spinco to or on behalf of
an NSU Indemnified Party with respect to its obligations under this Agreement.
The benefit shall not be finally and unconditionally determined for any year
until such year is closed for any future adjustment of federal income Tax
liability. Any amount set-off by Spinco or reimbursed to Spinco by NSU hereunder
shall bear interest from and after the date that such benefit was reflected on
the consolidated Tax return of NSU or taken into account in an NSU estimated Tax
payment to the date of such off-set or reimbursement at the rate of 6% per
annum. NSU shall promptly provide Spinco notice of each and every time it has
filed a Tax report or return wherein it has claimed or used such Tax benefit.
ARTICLE VI
EMPLOYEE BENEFIT PLANS
Section 6.01 The 401(k) Savings Plan. (a) As soon as practicable after the
date hereof (i) effective as of the Merger Effective Date, Spinco shall assume
and be solely responsible for, all Liabilities of NSU under the [NORTH STAR
UNIVERSAL 401(K) SAVINGS PLAN] (the "Savings Plan") and (ii) prior to the Merger
Effective Date, NSU agrees to take such actions as may be necessary in order for
Spinco or a Subsidiary of Spinco effectively to maintain and administer such
Savings Plan. Spinco and NSU shall each take, or cause to be taken, all such
actions as may be necessary or appropriate in order to establish Spinco or a
Subsidiary of Spinco as successor to NSU as to all rights, assets, duties and
Liabilities of NSU under, or with respect to, the Savings Plan, including, but
not limited to, the rights, assets, duties and Liabilities of NSU under, or with
respect to, any and all trust agreements to the extent that they relate solely
to the Savings Plan. Any action taken by NSU pursuant to this Section 6.01 after
the Merger Effective Date shall be at Spinco's expense.
(b) Upon Spinco or a Subsidiary of Spinco becoming the successor employer
or successor plan sponsor to NSU or any of its subsidiaries under the Savings
Plan, NSU agrees to take such actions as may be necessary to amend any trust
agreement required to be amended in order for Spinco or a Subsidiary of Spinco
effectively to assume and administer the Savings Plan.
(c) Transfers pursuant to this Section 6.01 shall be effected, where
practicable, so as to preserve each plan participant's investment election.
(d) NSU and Spinco shall, in connection with the transfers described in
this Section 6.01, cooperate in making all appropriate filings required under
the Code or ERISA, and the regulations thereunder and any applicable securities
laws, and take all such action as may be necessary and appropriate to cause such
transfers to take place as soon as practicable after the Distribution Date.
(e) From and after the Merger Effective Date, NSU and its Subsidiaries
thereafter shall cease to have any liability or obligation whatsoever with
respect to the Savings Plan. As provided in Article V, Spinco shall indemnify
NSU and such Subsidiaries against any such liability.
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Section 6.02 Welfare Plans.
(a) Except as otherwise specifically provided in this Section 6.02, as of
the Merger Effective Date, Spinco shall assume all Liabilities of NSU in
connection with claims brought under any of NSU's or its Subsidiaries' medical,
dental, life insurance, health, accident, disability or other welfare benefit
plans in existence on or prior to the Merger Effective Date and from and after
the Merger Effective Date, NSU and its Subsidiaries thereafter shall cease to
have any such liability or obligation. From and after the Merger Effective Date,
NSU shall no longer be a participating employer in such welfare benefit plans.
(b) As of the Merger Effective Date, Spinco shall assume and shall be
solely responsible for, all Liabilities of NSU in connection with claims for
post-employment welfare benefits (including, but not limited to, medical, health
and life insurance benefits) made by or in respect of (i) any Spinco Employee or
(ii) any employee of NSU prior to the Merger Effective Date who shall have
retired or whose employment otherwise terminates on or before the Merger
Effective Date, regardless of whether such claim shall relate to events which
occurred prior or subsequent to the Merger Effective Date. Spinco shall also
assume all "COBRA" continuation Liabilities of NSU as of the Merger Effective
Date.
(c) Prior to the Merger Effective Date, NSU and Spinco shall take all
actions necessary and appropriate to effect the assumption of the NSU welfare
plans by Spinco or a Subsidiary of Spinco and to provide the benefit coverage
otherwise necessary to assume the Liabilities which are or shall become the
responsibility of Spinco under this Section 6.02.
Section 6.03 NSU Employees. Effective as of the Merger Effective Date,
Spinco agrees to assume the employment of all employees of NSU who have not
resigned or been terminated on or prior to such date. Spinco shall assume and be
solely responsible for all Liabilities in connection with claims made by or on
behalf of such NSU employees in respect of salary, benefits, severance pay,
salary continuation and similar obligations relating to the employment or the
termination or alleged termination of the employment of any such person,
regardless of whether such termination or alleged termination occurred prior to
or subsequent to the Merger Effective Date.
Section 6.04 Other Liabilities and Obligations. As of the Merger Effective
Date, Spinco shall assume and be solely responsible for all Liabilities of NSU
with respect to claims made by persons who were, prior to the Merger Effective
Date, employees of NSU, relating to any employee liability or obligation not
otherwise provided for in this Agreement.
Section 6.05 Preservation of Rights To Amend or Terminate Plans. No
provisions of this Agreement shall be construed as a limitation on the right of
Spinco or any Spinco Subsidiary to amend such plan or terminate its
participation therein which Spinco or any Spinco Subsidiary would otherwise have
under the terms of such plan or otherwise, and no provision of this Agreement
shall be construed to create a right in any employee or beneficiary of such
employee under a plan which such employee or beneficiary would not otherwise
have under the terms of the plan itself.
ARTICLE VII
TAX MATTERS
Section 7.01 Allocation of Items of Income or Deduction for Reporting
Purposes. NSU, in consultation with and subject to the approval of Spinco, shall
either (i) cause Spinco to close its permanent books and records (including work
papers) as of the Distribution Date, in accordance with Treasury Regulations
Section 1.1502-76(b)(2) in order to permit Spinco's taxable income for the
taxable period ending on the Distribution Date to be reported and determined on
the basis of income shown on its permanent books and records (including work
papers) or (ii) allocate items of income or deduction between tax periods ending
on or before the Distribution Date and tax periods beginning after the
Distribution Date in accordance with Treasury Regulations Section
1.1502-76(b)(2)(ii).
Section 7.02 Spinco Indemnification for Tax Periods Prior to Distribution
Date. Spinco agrees to indemnify and hold harmless NSU from and against any
liability for Taxes attributable to NSU or Spinco
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(specifically including for all purposes of this Article VII, Taxes attributable
to all NSU Transferred Assets and NSU Transferred Liabilities transferred
pursuant to Article II) for Tax periods or portions thereof ending on or before
the Distribution Date. For purposes of this Section 7.02, "Spinco" shall mean
Spinco, itself, as well as all of its Subsidiaries eligible to be included in a
consolidated federal income tax return filed by Spinco as the common parent,
including any Subsidiary owned by NSU prior to the Merger Effective Date but not
then owned by NSU, and "NSU" shall mean NSU, itself, as well as all of its
Subsidiaries eligible to be included in a consolidated federal income tax return
filed by NSU as the common parent.
Section 7.03 NSU Liable for Filing and Payment of Spinco's Taxes Prior to
Distribution Date. NSU, in consultation with and subject to the approval of
Spinco, shall, at Spinco's expense, file (or shall cause to be filed) all tax
returns of Spinco for tax periods ending on or before the Distribution Date. NSU
shall, to the extent permissible, include (or cause to be included) the results
of the operations of Spinco in NSU's consolidated federal tax return and in any
other consolidated, unitary, or combined tax return for tax periods ending on or
before the Distribution Date and shall, subject to the indemnification
obligations under Section 7.02, pay all Taxes due for such periods with respect
to Spinco.
Section 7.04 Spinco Liable for Filing and Payment of Its Own Taxes for Tax
Periods Beginning Prior to Distribution Date and Ending After Distribution
Date. Spinco shall file (or shall cause to be filed) all Tax returns of Spinco
for any Tax period which begins before the Distribution Date and ends on or
after the Distribution Date. Spinco shall also file (or shall cause to be filed)
all Tax returns of Spinco for all subsequent Tax periods. Accordingly, Spinco
shall pay all Taxes shown as due on such returns or ultimately determined to be
due with respect to such periods and shall be entitled to keep and retain for
itself any refunds of Taxes or credits paid on behalf of or made available to
it. All Tax returns and any schedules to be included therewith for the Tax
period which begins before the Distribution Date and ends after the Distribution
Date shall be prepared on a basis consistent with those prepared for prior Tax
periods and consistent with the method used by NSU to allocate items of Spinco's
income or deduction for the Tax period ending on the Distribution Date pursuant
to Section 7.01 hereof, and shall be subject to the approval of NSU prior to
being filed by Spinco, which approval shall not be unreasonably withheld.
Section 7.05 Spinco's Right to Make Section 172(b)(3) Election and
Qualified Right to Subsequent Refund. Spinco shall have the right and option to
make an election pursuant to Section 172(b)(3) of the Code to carry forward any
of its net operating losses incurred in tax periods beginning after the
Distribution Date which, if carried back, would be carried back to a tax period
ending on or before the Distribution Date. Notwithstanding the foregoing,
whether or not Spinco makes such an election, Spinco shall be entitled to any
and all tax refunds, whether received by NSU or Spinco, that result from a
carryback of net operating losses or credits of Spinco arising in a tax period
beginning after the Distribution Date to a tax period ending on or before the
Distribution Date.
Section 7.06 Scope of NSU's Power to Negotiate Settlement During Audit for
Periods after the Merger Effective Date. In the event that any Taxing authority
conducts an audit to determine the amount of any net operating loss
carryforwards of NSU as of the Merger Effective Date for any Tax period
beginning after the Distribution Date, NSU shall notify Spinco and allow Spinco
to participate with NSU in contesting such issue and each party shall pay its
own expenses relating to the contesting of such issue. Notwithstanding the
foregoing, NSU shall have the right to finally resolve such issue.
Section 7.07 Rights of Parties With Respect to an Asserted Tax
Liability. Promptly after receipt by NSU of a written notice of any demand,
claim or circumstance, including any Tax audit, which, after the lapse of time,
would or might give rise to a claim or commencement of any action, proceeding,
or investigation with respect to which indemnity may be sought under Section
7.02 hereof (an "Asserted Tax Liability"), NSU shall give written notice thereof
to Spinco (the "Tax Claim Notice"). The Tax Claim Notice shall contain factual
information (to the extent known to NSU) describing in reasonable detail the
Asserted Tax Liability and shall include copies of any notice or other document
received from any taxing authority in respect of such Asserted Tax Liability. If
NSU fails to give Spinco prompt notice of an Asserted Tax Liability as required
by this Section 7.07, and if such failure results in an irrevocable financial
detriment to Spinco, then any amount which Spinco is otherwise required to pay
NSU pursuant to Section 7.02 hereof with respect to such Asserted
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Tax Liability shall be reduced by the amount of such irrevocable financial
detriment. Spinco may elect to direct, through counsel of its own choosing
reasonably acceptable to NSU and at its own expense, the compromise or contest,
either administratively or in the courts, of any Asserted Tax Liability. If
Spinco elects to direct the compromise or contest of any Asserted Tax Liability,
it shall, either within 30 calendar days after receiving the Tax Claim Notice
with respect to such Asserted Tax Liability (or sooner, if the nature of the
Asserted Tax Liability so requires) notify NSU of its intent to do so, and NSU
shall cooperate at its own expense in the compromise or contest of such Asserted
Tax Liability. Spinco, at its discretion, may enter into a settlement agreement
with respect to, or otherwise resolve, any Asserted Tax Liability without the
express consent of NSU, unless such settlement affects the Tax returns of NSU
after the Merger Effective Date, in which case the consent of NSU shall be
required and shall not be unreasonably withheld. If Spinco (1) within 30
calendar days after receiving the Tax Claim Notice with respect to such Asserted
Tax Liability (or sooner, if the nature of the Asserted Tax Liability so
requires) notifies NSU that it has elected not to direct the compromise or
contest of the Asserted Tax Liability, or (2) fails to properly notify NSU
within such period of its election to direct or not to direct the compromise or
contest of the Asserted Tax Liability, NSU may pay, compromise, or contest at
its own expense and in its sole discretion such Asserted Tax Liability. If NSU
or Spinco elects to direct the compromise or contest of any liability for Taxes
as provided herein, the other party shall promptly empower (by power of attorney
and such other documentation as may be appropriate) such representative of the
empowered party as the empowered party may designate to represent the empowering
party in any audit, claim for refund or administrative or judicial proceeding
insofar as such audit, claim for refund or proceeding involves an asserted
liability for Taxes for which Spinco would be liable under Section 7.02 hereof.
For all purposes of this Section 7.07, the right to participate in all
proceedings either administratively or in the courts relating to an Asserted Tax
Liability shall include the right to attend and be kept fully informed of all of
the foregoing but shall not include, unless expressly provided for herein, the
power to compromise, contest or make any other decisions with respect to an
Asserted Tax Liability.
Section 7.08 Mutual Duty to Cooperate and Act in Good Faith With Respect to
Filing or Amending of Returns, Claiming Refunds, or Conducting Audit. NSU and
Spinco shall provide each other with such cooperation and information as either
reasonably may request of the other in filing any tax return, amended return, or
claim for refund, in determining a liability for Taxes or a right to a refund of
Taxes, or in conducting any audit or proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of relevant tax
returns or portions thereof, together with accompanying schedules and related
work papers and documents relating to rulings or other determinations by tax
authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanation of any documents or information provided
hereunder. NSU shall make available to Spinco, with respect to all tax years in
which Spinco was includable in NSU's affiliated group (as defined in Section
1504 of the Code) copies of all work papers and schedules relating to the
preparation of Spinco's pro forma federal and state income tax returns which
were included in NSU's federal consolidated and state income tax returns which
are necessary to reconcile such pro forma returns with the amounts actually
included in such consolidated returns. NSU and Spinco shall make available to
each other all other books and records relating to Taxes of Spinco with respect
to all tax years in which Spinco was includable in NSU's affiliated group (as
defined in Section 1504 of the Code). NSU and Spinco agree to maintain and
preserve for a period of eight (8) years after the period to which such
documents relate, and, upon written request, to provide to the other party, such
factual information as that party reasonably requires for filing tax returns,
tax planning, and contesting any tax audit that only NSU or Spinco, as the case
may be, actually possesses.
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ARTICLE VIII
CERTAIN ADDITIONAL MATTERS
Section 8.01 The Spinco Board. Spinco and NSU shall take all actions which
may be required to elect or otherwise appoint, as of the Distribution Date, the
following [five] persons as directors of Spinco:
Section 8.02 Spinco Charter and By-Laws. Prior to the Merger Effective
Date, Spinco shall adopt the Spinco Charter and the Spinco By-Laws and shall
file the Spinco Charter with the Secretary of State of the State of Minnesota.
Section 8.03 NSU Long-Term Liabilities; Minimum Value of Spinco.
(a) Release Date. Prior to the third anniversary of the Merger Effective
Date, Spinco shall have caused the Release Date to have occurred with respect to
each of the NSU Long-Term Liabilities.
(b) Minimum Value. Spinco shall not (A) pay any dividends, whether in cash
or in property, or make any other distribution to its shareholders, or redeem
any of its capital stock for cash or property, (B) sell, transfer or dispose of
any material amount of its assets in a single transaction or related series of
transactions, except in the ordinary course of its business or for fair value,
or (C) sell, transfer or dispose of all or substantially all of its assets or
engage in any merger, consolidation or reorganization unless (X) in the case of
the sale, transfer or other disposition of all or substantially all of its
assets, the purchaser assumes the obligations of Spinco (jointly and severally
with Spinco) under this Agreement, (Y) in the case of a merger, consolidation or
reorganization, the surviving entity assumes the obligations of Spinco under
this Agreement, or (Z) the Market Value (as defined below) of Spinco immediately
after giving effect to such dividend, distribution, redemption or other
transaction is at least equal to the following amounts during the following
periods:
(i) $9,000,000 during the period beginning on the Merger Effective
Date and continuing to the later to occur of (x) the Release Date or (y)
the third anniversary of the Merger Effective Date;
(ii) $3,000,000 during the period from the end of the period
referenced in clause (i) above and continuing to the fifth anniversary of
the Merger Effective Date.
The term "Market Value" shall mean the greater of: (a) the market capitalization
of Spinco's outstanding equity securities, if Spinco is a publicly traded
company, or (b) the net book value of Spinco computed in accordance with
generally accepted accounting principles, except that securities owned by Spinco
which are publicly traded shall be valued at their market value without any
adjustment for lack of liquidity or control premium, but reduced for any taxes
payable on the disposition of such securities, taking into account any and all
tax benefits (e.g., net operating loss carryforward, tax credits, deductions or
exclusions) available to Spinco and using Spinco's then applicable effective tax
rate for purposes of such calculations.
Section 8.04 Adjustment for Dissenting Shares Liability. If the actual
amount paid after the Merger Effective Date with respect to the Dissenting
Shares (the "Actual Payment") is less than the Dissenting Shares Holdback, then
within ten days after the date of determination of the Actual Payment, NSU shall
pay to Spinco by wire transfer of immediately available funds to a designated
account the amount of such shortfall. Notwithstanding anything herein or in the
Merger Agreement to the contrary, with respect to the Dissenting Shares and the
Dissenting Shares Liability, NSU agrees that it shall promptly give notice to
Spinco after obtaining knowledge of any threatened or pending claim regarding
the Dissenting Shares or the Dissenting Shares Liability and Spinco shall, at
its expense, assume and direct the negotiation, settlement or defense of such
claim and any litigation arising from such claim, and NSU agrees to cooperate
with Spinco in resolving or attempting to resolve any such claim or litigation;
provided that Spinco shall not, without NSU's prior
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consent, settle any such claim after the Merger Effective Date if such
settlement may result in the Dissenting Shares Liability exceeding the
Dissenting Shares Holdback.
Section 8.05 NSU Covenants.
(a) From and after the Merger Effective Date, NSU shall be solely
responsible for the payment, performance and discharge of the NSU Assumed
Liabilities and shall pay, perform and discharge the NSU Assumed Liabilities in
accordance with the governing instruments and applicable laws related thereto.
Subject to the prior consummation of the Merger, NSU covenants and agrees to
repay in full all of the NSU Indebtedness not later than six months after the
Merger Effective Date, all such repayments (excluding any payments made with
respect to any instruments that have matured or otherwise become due and payable
in accordance with their respective terms prior to such repayment date) to be
effected on or about the same date.
ARTICLE IX
ACCESS TO INFORMATION AND SERVICES
Section 9.01 Provision of Corporate Records. NSU shall arrange as soon as
practicable following the Distribution Date for the transportation at Spinco's
cost to Spinco of existing corporate records in its possession relating to the
NSU Transferred Assets and the NSU Transferred Liabilities, including original
corporate minute books, stock ledgers and certificates and corporate seals of
Spinco and the Spinco Subsidiaries, and all active agreements, active litigation
files and filings with governmental agencies, except to the extent such items
are already in the possession of Spinco or a Spinco Subsidiary. NSU shall also
provide to Spinco, unless already in the possession of Spinco or a Spinco
Subsidiary and only to the extent that NSU maintains them, lists of trademarks,
patents (design and mechanical) and copyrights included in the Spinco Assets.
Such records shall be the property of Spinco, but shall be available to NSU for
review and duplication until NSU shall notify Spinco in writing that such
records are no longer of use to NSU.
Section 9.02 Access to Information. From and after the Distribution Date,
NSU shall afford to Spinco and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable efforts
to give access to persons or firms possessing information) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within NSU's possession relating to Spinco, the NSU Transferred
Assets or the NSU Transferred Liabilities, insofar as such access is reasonably
required by Spinco. Information may be requested under this Article IX for,
without limitation, audit, accounting, claims, litigation and tax purposes, as
well as for purposes of fulfilling disclosure and reporting obligations and for
performing this Agreement and the transactions contemplated hereby.
Section 9.03 Provision of Services. In addition to any services
contemplated to be provided following the Distribution Date by this Agreement,
each party, upon written request, shall make available to the other party,
during normal business hours and in a manner that will not unreasonably
interfere with such party's business, its financial, tax, accounting, legal,
employee benefits and similar staff and services (collectively "Services")
whenever and to the extent that they may be reasonably required in connection
with the preparation of tax returns, audits, claims, litigation or
administration of employee benefit plans, and otherwise to assist in effecting
an orderly transition following the Distribution.
Section 9.04 Production of Witnesses. At all times from and after the
Distribution Date, each of Spinco and NSU shall use reasonable efforts to make
available to the other upon written request, its and its subsidiaries' officers,
directors, employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved.
Section 9.05 Reimbursement. Except to the extent otherwise contemplated by
this Agreement, a party providing Information or Services to the other party
under this Article IX shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments for such amounts, relating to
supplies,
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disbursements and other out-of-pocket expenses, as may be reasonably incurred in
providing such Information or Services.
Section 9.06 Retention of Records. Except as otherwise required by law, or
agreed to in writing, each of NSU and Spinco shall retain, and shall cause its
Subsidiaries to retain, for a period of at least eight years following the
Distribution Date, all information relating to the other and the other's
subsidiaries.
Section 9.07 Confidentiality. NSU and Spinco shall hold, and shall cause
their respective officers, employees, agents and consultants and advisors to
hold, in strict confidence, unless compelled to disclose by judicial or
administrative process or, in the opinion of its independent legal counsel, by
other requirements of law, all confidential information concerning the other
party furnished to it by such other party or its representatives pursuant to
this Agreement (except to the extent that such information can be shown to have
been (i) available to such party on a non-confidential basis prior to its
disclosure by the other party, (ii) in the public domain through no fault of
such party or (iii) later lawfully acquired from other sources by the party to
which it was furnished), and each party shall not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors who shall be bound by the
provisions of this Section 9.07. Each party shall be deemed to have satisfied
its obligation to hold confidential information concerning or supplied by the
other party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
ARTICLE X
DISPUTE RESOLUTION
Section 10.01 Mediation and Binding Arbitration. If a dispute arises
between NSU and Spinco as to the interpretation of this Agreement or any other
agreement entered into pursuant hereto, including, without limitation, any
indemnification obligations pursuant to Article V, NSU and Spinco agree to use
the following procedures, in lieu of either party pursuing other available
remedies and as the sole remedy, to resolve the dispute.
Section 10.02 Initiation. A party seeking to initiate the procedures shall
give written notice to the other party, describing briefly the nature of the
dispute. A meeting shall be held between the parties within 10 days of the
receipt of such notice, attended by individuals with decision-making authority
regarding the dispute, to attempt in good faith to negotiate a resolution of the
dispute.
Section 10.03 Submission to Mediation. If, within 30 days after such
meeting, the parties have not succeeded in negotiating a resolution of the
dispute, they agree to submit the dispute to mediation in accordance with the
Center for Public Resources Model ADR Procedure -- Mediation of Business
Disputes, as modified herein, and to bear equally the costs of the mediation.
Section 10.04 Selection of Mediator. The parties will jointly appoint a
mutually acceptable mediator, seeking assistance in such regard from the Center
for Public Resources or another mutually agreed-upon organization if they have
been unable to agree upon such appointment within 20 days from the conclusion of
the negotiation period.
Section 10.05 Mediation and Arbitration. The parties agree to participate
in good faith in the mediation and negotiations related thereto for a period of
30 days following the initial mediation session. If the parties are not
successful in resolving the dispute through the mediation by the end of such
30-day period, then the parties agree to submit the matter to binding
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, as modified herein, by a
panel of three arbitrators, in Minneapolis, Minnesota, selected in accordance
with the provisions of Section 10.06 hereof. The arbitration shall be governed
by the Rules of the American Arbitration Association then in effect and as
modified herein, and judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The arbitrators shall not,
under any circumstances, have any authority to award punitive, exemplary or
similar damages and may not, in any event, make any ruling, finding or award
that does not conform to the terms and conditions of this Agreement. Nothing
contained in this Article X shall limit or
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restrict in any way the right or power of a party at any time to seek injunctive
relief in any court and to litigate the issues relevant to such request for
injunctive relief before such court (i) to restrain the other party from
breaching this Agreement or (ii) for specific enforcement of this Article X. The
parties agree that any legal remedy available to a party with respect to a
breach of this Article X will not be adequate and that, in addition to all other
legal remedies, each party is entitled to an order specifically enforcing this
Article X.
Section 10.06 Selection of Arbitrators. The parties shall have 10 days from
the end of the mediation period to agree upon mutually acceptable neutral
persons not affiliated with either of the parties to act as arbitrators. If the
panel of arbitrators has not been selected within such time, the parties agree
jointly to request the Center for Public Resources or another mutually
agreed-upon organization to supply within 10 days a list of potential
arbitrators with qualifications as specified by the parties in the joint
request. Within five days of receipt of the list, the parties shall
independently rank the proposed candidates, shall simultaneously exchange
rankings, and shall select as the arbitrator the individual receiving the
highest combined ranking who is available to serve. Neither party nor the
arbitrators may disclose the existence or results of any arbitration under this
Agreement or any evidence presented during the course of arbitration without the
prior consent of both parties, except as required to fulfill applicable
disclosure and reporting requirements, or as otherwise required by law.
Section 10.07 Cost of Arbitration. Each party shall bear its own costs
incurred in the arbitration. If either party refuses to submit to arbitration
any dispute required to be submitted to arbitration pursuant to this Article X,
and instead commences any other proceeding, including litigation, then the party
who seeks enforcement of the obligation to arbitrate shall be entitled to its
attorneys' fees and costs incurred in any such proceeding.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Complete Agreement; Construction. This Agreement, including
the Schedules and Exhibits and other agreements and documents referred to
herein, shall constitute the entire agreement between the parties with respect
to the subject matter hereof and shall supersede all previous negotiations,
commitments and writings with respect to the subject matter.
Section 11.02 Survival of Agreements. Except as otherwise contemplated by
this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
Section 11.03 Expenses. All costs and expenses arising prior to the
Distribution Date (whether or not then payable) in connection with the
preparation, execution, delivery and implementation of this Agreement and with
the consummation of the transactions contemplated by this Agreement shall be
paid in accordance with Section 6.2 of the Merger Agreement.
Section 11.04 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without regard
to the principles of conflicts of laws thereof.
Section 11.05 Notices. All notices and other communications hereunder shall
be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the
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following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which such
notice is received:
To NSU:
with a copy to:
To Spinco:
with a copy to:
Section 11.06 Amendments. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
Section 11.07 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
Section 11.08 Termination. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Merger Effective Date by and in
the sole discretion of the NSU Board without the approval of Spinco or NSU's
shareholders. In the event of such termination, no party shall have any
liability of any kind to any other party.
Section 11.09 Subsidiaries. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any subsidiary of such party
which is contemplated to be a subsidiary of such party on and after the
Distribution Date.
Section 11.10 No Third Party Beneficiaries. Except for the provisions of
Article V relating to Indemnified Parties and as specified in Section 2.07, this
Agreement is solely for the benefit of the parties hereto and their respective
subsidiaries and Affiliates and should not be deemed to confer upon third
parties any remedy, claim, Liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
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Section 11.11 Titles and Headings. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
Section 11.12 Exhibits and Schedules. The Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
Section 11.13 Legal Enforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision or remedies otherwise available to any party
hereto. Without prejudice to any rights or remedies otherwise available to any
party hereto, each party hereto acknowledges that damages would be an inadequate
remedy for any breach of the provisions of this Agreement and agrees that the
obligations of the parties hereunder shall be specifically enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written
NORTH STAR UNIVERSAL, INC.
By
--------------------------------------
Name
----------------------------------
Its
------------------------------------
NEW HOLDING COMPANY, INC.
By
--------------------------------------
Name
----------------------------------
Its
------------------------------------
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EXHIBIT D
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
NORTH STAR UNIVERSAL, INC.
We, the undersigned, respectively the President and Secretary of North Star
Universal, Inc., a corporation subject to the provisions of Minnesota Statutes
Chapter 302A., known as the Minnesota Business Corporation Act, do hereby
certify that at a meeting of the shareholders of said corporation duly called
and held at , at p.m. on , 1996,
pursuant to notice mailed to all shareholders entitled to vote thereon, the
following Amended and Restated Articles of Incorporation were adopted by a
majority vote of all of the shares of stock present at such meeting and entitled
to vote to supersede and take the place of the existing articles of
incorporation and all amendments and restatements thereto, to wit:
ARTICLE I.
NAME
The name of this corporation shall be Michael Foods, Inc.
ARTICLE II.
PURPOSE
This corporation shall have general business purposes.
ARTICLE III.
REGISTERED OFFICE
The registered office of this corporation shall be 324 Park National Bank
Building, 5353 Wayzata Boulevard, Minneapolis, Minnesota, 55416, County of
Hennepin.
ARTICLE IV.
CAPITAL STOCK
This corporation shall have authorized capital stock consisting of
50,000,000 shares, which shall be composed of 40,000,000 shares of common stock
having a par value of $.01 per share and 10,000,000 undesignated shares. Each
share of common stock shall be entitled to one vote on all matters presented to
the shareholders for a vote.
The Board of Directors may, from time to time, establish by resolution,
different classes or series of shares and may fix the rights and preferences of
said shares in any class or series. The Board of Directors shall have the
authority to issue shares of a class or series, shares of which may then be
outstanding to holders of shares of another class or to effectuate share
dividends, splits, or conversions of its outstanding shares.
ARTICLE V.
CERTAIN SHAREHOLDER RIGHTS
Shareholders shall have no preemptive rights to purchase, subscribe for or
otherwise acquire any new or additional securities of the corporation. No
shareholder shall be entitled to cumulative voting rights.
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ARTICLE VI.
DIRECTORS
1. The business of this corporation shall be managed by or under the
direction of a board of directors consisting of not less than three (3)
directors. Directors need not be shareholders of the corporation. The Board of
Directors in its discretion may elect honorary directors who shall serve without
voting power.
2. Directors shall be elected for a term of one (1) year and until their
successors are elected and qualified. If any vacancy occurs in the board of
directors, the remaining directors, by the affirmative vote of a majority
thereof, shall elect a director or directors to fill the vacancy until the next
regular meeting of the shareholders.
3. The directors shall have all of the powers conferred upon directors by
the Minnesota Business Corporation Act.
4. An action required or permitted to be taken by the board of directors of
this corporation may be taken by written action signed by the number of
directors that would be required to take the same action at a meeting of the
board at which all directors are present except as to those matters which
require shareholder approval, in which case the written action must be signed by
all members of the board of directors.
5. To the full extent permitted by the Minnesota Business Corporation Act,
as it exists on the date hereof or may hereafter be amended, a director of this
corporation shall not be liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director. No amendment to or
repeal of this section shall apply to or have any effect on the liability or
alleged liability of any director of the corporation for or with respect to acts
or omissions of such director occurring prior to such amendment or repeal.
ARTICLE VII.
INDEMNIFICATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the corporation) to the full extent
permitted by the Minnesota Business Corporation Act.
ARTICLE VIII.
The private property of the shareholders of this corporation shall not be
subject to the payment of corporate debts to any extent whatsoever.
IN TESTIMONY WHEREOF, we have hereunto set our hands this day of
, 1996.
--------------------------------------
GREGG A. OSTRANDER
President
--------------------------------------
JEFFREY M. SHAPIRO
Secretary
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STATE OF MINNESOTA }
ss.
COUNTY OF HENNEPIN }
The foregoing instrument was acknowledged before me this day of
, 1996, by Gregg A. Ostrander and Jeffrey M. Shapiro, President and
Secretary respectively of North Star Universal, Inc., a Minnesota corporation,
on behalf of the Corporation.
--------------------------------------
Notary Public
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EXHIBIT E
FORM OF ORDERLY DISPOSITION AND
REGISTRATION RIGHTS AGREEMENT
ORDERLY DISPOSITION AND REGISTRATION RIGHTS AGREEMENT
This Agreement made and entered into this day of December, 1995, by
and between NORTH STAR UNIVERSAL, INC., a Minnesota corporation, which, upon the
effective date of the Merger defined in the first recital hereof, will be the
parent corporation to the surviving corporation resulting from the merger of
Merger Sub and Michael as described in the first recital hereof ("Michael
Minnesota)", and 4J2R1C, a Minnesota limited partnership, 3J2R, a Minnesota
limited partnership, JAMES H. MICHAEL and JEFFREY J. MICHAEL (such individuals
and partnerships, together with any immediate family members of such individuals
or any corporation, partnership of trust in which such individuals or their
immediate family members are the sole shareholders, partners or beneficiaries
thereof, to be hereinafter collectively referred to as the "Michael
Shareholders").
WITNESSETH:
WHEREAS, Michael Minnesota is a party to an Agreement and Plan of
Reorganization dated December , 1995 (the "Merger Agreement") providing for
the merger (the "Merger") of NSU Merger Co. ("Merger Sub"), a newly formed
Delaware corporation and wholly-owned subsidiary of Michael Minnesota, with and
into Michael Foods, Inc., a Delaware corporation ("Michael"), as the surviving
corporation; and
WHEREAS, under Section 6.16 of the Merger Agreement, Michael Minnesota
agreed to execute and deliver and to cause the Michael Shareholders to execute
and deliver this Orderly Disposition and Registration Rights Agreement.
NOW THEREFORE, IN CONSIDERATION of the premises and of the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Definitions. Unless the context otherwise requires or unless otherwise
defined in this agreement, capitalized terms shall have the meanings ascribed to
them in the Merger Agreement. Any references to Michael Minnesota shall include
North Star Universal, Inc. and Michael Minnesota from and after the consummation
of the Merger and the change of its name to Michael Foods, Inc.
2. Actions Pending Effective Time. From the date of this Agreement until
the Effective Time, the Michael Shareholders, individually and collectively,
shall:
a. not sell or offer to sell, hypothecate or transfer any shares of Michael
Minnesota common stock, except that this limitation shall not apply to sales of
Michael Minnesota common stock made pursuant to Rule 144 of the Securities and
Exchange Commission (the "SEC"), or the pledge of Michael Minnesota common stock
to secure surety bonds for Michael-Curry Companies, Inc. or transfers of Michael
Minnesota common stock among Michael Shareholders;
b. vote in favor of the Merger, the Spinoff, the Reverse Stock Split and
the election of directors nominated by Michael Minnesota management at any
meeting of shareholders duly called and held for such purposes; and
c. prepare and file any pre-merger notification to the Federal Trade
Commission required in connection with the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules of the Federal Trade Commission
thereunder.
3. Restrictions Upon Disposition. For a period of twenty-four (24) months
following the Effective Date, the Michael Shareholders, individually or
collectively, shall not:
a. sell or offer to sell shares of common stock of Michael Minnesota
exceeding five percent (5%) of the then outstanding shares of common stock of
Michael Minnesota to any person or group in any single
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transaction or series of transactions without providing to Michael Minnesota the
first right to buy such shares as provided in Section 5 below;
b. sell or offer to sell any shares of common stock of Michael Minnesota to
any person or group which owns five percent (5%) or more of the outstanding
common stock of Michael Minnesota without providing to Michael Minnesota the
first right to buy such shares as provided in Section 5 below; or
c. pledge, hypothecate, or encumber any shares of Michael Minnesota owned
by any of the Michael Shareholders except to secure surety bonds obtained by
Michael-Curry Companies, Inc.
For purposes of this agreement, the term "group" shall mean any two or more
persons who agree to act together for the purpose of acquiring, holding, voting
or disposing of common stock of Michael Minnesota.
4. Shares Covered. This agreement shall apply to all shares of common stock
of Michael Minnesota which are owned by the Michael Shareholders at the date of
this agreement or which are acquired by the Michael Shareholders prior to the
Effective Date or as a result of the Merger, but shall not apply to any shares
of common stock of Michael Minnesota which are purchased or otherwise acquired
by any of the Michael Shareholders subsequent to the Effective Date unless such
shares were subject to this agreement at the time they were so acquired by a
Michael Shareholder.
5. Option to Purchase. Upon the occurrence of any of the events described
in Section 3(a) or (b), the Michael Shareholders or Shareholder proposing to
sell or offer shares of common stock of Michael Minnesota shall provide written
notice thereof to Michael Minnesota and shall offer to Michael Minnesota the
right to purchase such shares. The notice shall state the number of shares
offered and the price per share and any other conditions of the proposed sale or
offer and shall include a copy of any written document setting forth the terms
of the proposed sale or offer between the Michael Shareholders and the purchaser
or offeree. Michael Minnesota shall have twenty (20) days from its receipt of
such notice within which to purchase the shares so offered. In the event Michael
Minnesota does not complete the purchase within such twenty (20) day period, the
Michael Shareholders or Shareholder sending the notice shall be permitted for a
period of thirty (30) days thereafter to sell Michael Minnesota shares equal in
number to the shares offered in such notice free of any restrictions of this
agreement at a price no less than the purchase price per share set forth in such
notice and under terms and conditions no more favorable to the purchaser than
the terms and conditions offered to Michael Minnesota in such notice.
6. Tender Offer. The restrictions set forth in Section 3 and the option to
purchase granted to Michael Minnesota in Section 5 shall not apply if a tender
offer is made for all or substantially all of the outstanding Michael Minnesota
common stock and the management of Michael Minnesota does not, within seven (7)
days of the commencement of such tender offer, announce its opposition to the
tender offer. Notwithstanding the foregoing, the following additional terms and
conditions shall apply in the event of a tender offer:
a. In the event that one or more of the Michael Shareholders has offered
shares to Michael Minnesota pursuant to Section 5 hereof and, prior to
acceptance of such offer by Michael Minnesota, a tender offer is made for all or
substantially all of the outstanding Michael Minnesota common stock, Michael
Minnesota shall, within twenty (20) days of the date such Michael Shareholder(s)
have made such offer, have the right to acquire the shares offered by such
Michael Shareholder(s) at the higher of the price offered by the Michael
Shareholder(s) or the tender offer price, regardless of whether Michael
Minnesota's management has announced it opposition to such tender offer.
b. In the event that one or more of the Michael Shareholders has offered
shares to Michael Minnesota pursuant to Section 5 hereof and, following
acceptance of such offer by Michael Minnesota but prior to the closing of such
transaction, either a tender offer is made for all or substantially all of the
outstanding Michael Minnesota common stock or the management of Michael
Minnesota rescinds an earlier opposition to such a tender offer, Michael
Minnesota shall have the option of (a) rescinding its agreement to purchase the
shares from such Michael Shareholder(s) within two (2) days of the commencement
of such tender offer or its announcement of its rescindment of its opposition to
the tender offer; or (b) acquiring such shares at the higher of the price
offered by such Michael Shareholder(s) at the tender offer price.
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7. Legend. Each of the Michael Shareholders shall forthwith deliver to the
secretary of Michael Minnesota all certificates representing shares of common
stock of Michael Minnesota which are subject to this agreement for the purpose
of placing thereon the following legend:
"The shares represented by this certificate are subject to certain
restrictions on the transfer, sale or other disposition of the shares
pursuant to an agreement dated , 1995 between the issuer and
the registered owner hereof, a copy of which may be obtained from the
secretary of the corporation."
The secretary shall promptly return the legended certificates to the Michael
Shareholders.
8. Directors. For a period of twenty-four (24) months following the
Effective Date, the Board of Directors of Michael Minnesota shall include
representatives of the Michael Shareholders as provided below. The first board
of directors of Michael Minnesota at the Effective Date shall include Jeffrey J.
Michael and Miles E. Efron or other substitute nominees of the Michael
Shareholders if either of them are unable or unwilling to serve as
representatives of the Michael Shareholders. Within thirty (30) days following
the end of each calendar year after the Effective Date and within the
twenty-four (24) months following the Effective Date, the Michael Shareholders
shall give notice to Michael Minnesota of their nominee or nominees for Board of
Directors. If the Michael Shareholders collectively own 10% or more of the
outstanding common stock of Michael Minnesota, they shall be entitled to
nominate two (2) directors. If the Michael Shareholders own less than 10% of the
outstanding common stock of Michael Minnesota, they shall be entitled to
nominate one (1) director. Notice hereunder shall be given by Jeffrey J.
Michael, as representative of all the Michael Shareholders.
9. Registration Rights.
a. Piggyback Rights. If at any time within twenty-four (24) months
following the Effective Date, Michael Minnesota proposes to register common
stock under the Securities Act of 1933, as amended (the "Securities Act") in
connection with a public offering of common stock for its own account solely for
cash (other than a registration on form S-4 or S-8 or any successor form
thereof) in a manner that would permit registration of all or a portion of the
Michael Minnesota common stock owned by the Michael Shareholders, it will give
prompt notice thereof to the Michael Shareholders. Upon written notice of any
Michael Shareholders to Michael Minnesota received within fifteen (15) days
after delivery of notice of the proposed offering by Michael Minnesota, Michael
Minnesota will use its best efforts to effect the registration of the Michael
Minnesota shares covered by such notice under the Securities Act; provided,
however, that Michael Minnesota shall have the right to abandon the registration
in its entirety at any time and shall not be required to register shares of the
Michael Shareholders if the underwriters in any underwritten offering reasonably
object to the inclusion of such shares in the registration, and provided
further, that in any underwritten offering, the Michael Shareholders
participating in the registration agree to sell their shares to the underwriters
on the same terms and conditions as apply to Michael Minnesota, with such
differences as customarily apply in combined primary and secondary offerings.
b. Requested Registration. If, at any time commencing on the Effective Date
and continuing for a period of twenty-four (24) months thereafter, Michael
Minnesota shall receive a written request from one or more Michael Shareholders
that Michael Minnesota effect the registration under the Securities Act of all
or a part of such Michael Shareholder's(') shares of Michael Minnesota common
stock constituting in the aggregate at least 500,000 shares (such number of
shares to be adjusted to reflect any stock split, stock dividend or other
combination or reclassification of Michael Minnesota's capital stock after the
Effective Date) and requesting that such shares be sold in a registered public
offering in accordance with this Section 9, then Michael Minnesota will, within
ten (10) days after receipt thereof, give notice to all other Michael
Shareholders of the receipt of such request and each such holder may elect by
written notice received by Michael Minnesota within ten (10) days from the date
of the notice by Michael Foods to have all or part of his shares of Michael
Minnesota common stock included in such registration; provided, however, that
the Michael Shareholders collectively shall only have the right to cause Michael
Minnesota to effect a registration pursuant to this section on two occasions
during such twenty-four (24) month period. Upon receipt of such notice, Michael
Minnesota will, as soon as practicable, use reasonable efforts to effect the
registration under the Securities Act of all registrable securities which it has
been so requested to register and provided further, that Michael
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Minnesota: (i) shall not be obligated to cause any special audit to be
undertaken in connection with any such registration; (ii) shall be entitled to
postpone for a reasonable period of time, but not in excess of one hundred
twenty (120) days, the filing of any registration statement otherwise required
to be prepared pursuant to this section if Michael Minnesota is, at such time,
conducting or about to conduct an underwritten public offering of equity
securities (or securities convertible into equity securities) and is advised in
writing by its managing underwriter that such offer would, in its opinion, be
adversely effected by the registration so requested; and (iii) shall be entitled
to postpone such requested registration for up to 120 days if Michael Minnesota
determines, in view of the advisability of deferring public disclosure of
material corporate developments or other information, that such registration and
the disclosure required to be made pursuant thereto would not be in the best
interest of Michael Minnesota at such time.
c. Form of Requested Registration. All registrations proposed to be
effected under this Section shall be made on Form S-3 unless the registration
shall be in connection with underwritten public offering and the managing
underwriter shall advise Michael Minnesota in writing that, in its opinion, the
use of another form of registration statement is of material importance to the
success of such proposed offering. In such case, the registration shall be
effected on such other form. During the term of this agreement, Michael
Minnesota shall take all such reasonable actions as may be necessary to maintain
its eligibility to use such form(s).
d. Expenses. In connection with any registration statement pursuant to this
section and whether or not the sale of the shares is consummated, each selling
Michael Shareholder will pay: (i) a pro rata portion of the aggregate
registration expenses and other expenses incurred by Michael Minnesota in
connection with the registration of the sale of the shares and the sale of the
shares offered based on the number of such Michael Shareholder's(') registrable
securities included in the registration statement at the time the registration
statement is filed with the SEC relative to the total number of securities
covered by such registration statement at such time, (ii) a pro rata portion
(based on the number of such Michael Shareholder's registrable securities
included in the registration statement at the time the registration statement is
filed with the SEC relative to the total number of securities covered by such
registration statement at such time) of the aggregate fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, including
liability insurance if Michael Minnesota so desires or if the underwriters so
require, and the reasonable fees and expenses of any special experts retained in
connection with the requested registration; (iii) the fees and disbursements of
counsel to Michael Shareholder(s); and (iv) all underwriting discounts and
commissions and transfer taxes, if any, applicable to shares of registrable
securities to be sold on behalf of Michael Shareholder(s). All such amounts
shall be due and payable at the request of Michael Minnesota at the closing of
any underwritten offering, the effective date of the registration statement in
the case of a non-underwritten offering or upon abandonment of the registration.
e. Completion. A registration requested pursuant to this section will not
be deemed to have been effected unless it has become effective under the
Securities Act, provided that, if within 180 days after it has become effective
the offering of registrable securities pursuant to such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, such registration will be deemed
not to have been effected.
f. Selection of Underwriter and Investment Manager. If a requested
registration pursuant to this section involves an underwritten offering, Michael
Minnesota shall have the exclusive right to select an investment banker or
bankers and managers to administer the offering. The offer or sale of Michael
Minnesota shares to an underwriter in a registered public offering shall not
constitute a sale or offer to sell the shares for purposes of Section 3(a) or
3(b).
g. Registration. If and whenever Michael Minnesota is required to use its
reasonable efforts to cause the registration of any registrable securities under
the Securities Act as provided in this agreement, Michael Minnesota will, as
expeditiously as reasonably possible: (i) prepare and file with the SEC a
registration statement with respect to such registrable securities and use its
best efforts to cause such registration statement to become effective and, upon
the request of the holders of a majority of the registrable securities
registered by the Michael Shareholder(s) hereunder, keep such registration
statement effective for one hundred eighty (180) days; (ii) prepare and file
with the SEC such amendments and supplements to such
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registration statement and the prospectus used in connection therewith as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement; (iii)
furnish to each Michael Shareholder seeking registration hereunder such number
of copies of the prospectus included in such registration statement (including
each preliminary prospectus and summary prospectus), and such other documents as
each such Michael Shareholder may reasonably request in order to facilitate the
disposition of the registrable securities by such seller but only while it shall
be required under the provisions hereof to cause the registration statement to
remain current; (iv) use its reasonable efforts to register or qualify such
registrable securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the sellers shall
reasonably request, except that Michael Minnesota shall not, for any purpose, be
required to qualify generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this clause, it would not be
obligated to be so qualified, to subject itself to taxation in any such
jurisdiction, or consent to general service of process in any such jurisdiction;
(v) use its reasonable efforts to list the securities being registered on the
National Association of Securities Dealers, Inc. National Market System
("NASDAQ-NMS"), if such registrable securities are not already so listed.
h. Information. Michael Minnesota may require each selling Michael
Shareholder to furnish it with such information regarding such selling Michael
Shareholder and pertinent to the disclosure requirements relating to the
registration and the distribution of such securities as Michael Minnesota may
from time to time reasonably request in writing.
i. Underwriting Agreement. The selling Michael Shareholders shall execute
and deliver an underwriting agreement in customary form in connection with any
underwritten offering made pursuant to a registration hereunder.
10. Indemnification and Contribution. As a condition to the registration of
registrable securities of the Michael Shareholders pursuant to this agreement,
Michael Minnesota may require the selling Michael Shareholders to enter into an
Indemnification and Contribution Agreement with respect to claims or liabilities
arising under the Securities Act or the Securities Exchange Act of 1934 as a
result of the representations and warranties made by the selling Michael
Shareholder(s) in connection with their offer or sale of the registrable
securities. Such agreement shall be in customary form and shall contain mutual
cross indemnity and contribution provisions.
11. General Provisions.
a. Governing Law. This agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Minnesota without giving
effect to any conflicts of law provisions.
b. Remedies. Michael Minnesota, on the one hand, and the Michael
Shareholders, on the other, acknowledges and agrees that the other would not
have an adequate remedy at law for money damages in the event that any of the
covenants or agreements in this agreement of such party were not performed in
accordance with its terms, and it is therefore agreed that in addition to and
without limiting any other remedy or right such party may have, any party will
have the right to an injunction or other equitable relief (including specific
performance) in any court of competent jurisdiction, enjoining any such breach
and enforcing specifically the terms and provisions hereof. All rights, powers
and remedies provided under this agreement or otherwise available in respect
hereof at law or in equity shall be cumulative and not alternative.
Notwithstanding the foregoing, Michael Minnesota hereby acknowledges and agrees
that, from the date hereof until and including the Effective Date, it shall not
be entitled hereunder to any claim for money damages against the Michael
Shareholder, it being the intention of the parties hereto that any claim for
damages arising out of a failure of the Merger to become effective shall be
limited to the damages specified in Section 8.2(a) of the Merger Agreement,
which such damages shall be payable by North Star Universal, Inc., a Minnesota
corporation which is a constituent party to the proposed Merger.
c. Notices. All notices, demands, requests, certificates or other
communications under this Agreement and all legal processes in regard hereto
shall be in writing and shall be decreed to be validly given, made or served
when delivered personally or deposited in the U.S. mail, postage prepaid, for
delivery by express,
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registered or certified mail, or delivered to a recognized overnight courier
service guaranteeing next Business Day delivery, addressed as follows:
If to North Star Universal, Inc.: Michael Foods, Inc.
5353 Wayzata Boulevard
324 Park National Bank Building
Minneapolis, Minnesota 55416
Attention: President
If to the Michael Shareholders: Jeffrey J. Michael
5745 Seven Oaks Court
Minnetonka, Minnesota 55345
d. Severability. If any term, provision, covenant or restriction of this
agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. The parties agree that they will use their
best efforts at all times to support and defend this agreement.
e. Amendments. This agreement may be amended only by an agreement in
writing signed by all of the parties hereto.
f. Descriptive Headings. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provision of this
agreement.
g. Counterparts. This agreement shall become binding when one or more
counterparts hereof, individually or taken together, bears the signatures of
each of the parties hereto. This agreement may be executed in any number of
counterparts, each of which shall be an original as against the party whose
signature appears thereon, or on whose behalf such counterpart is executed, but
all of which when taken together shall be one and the same statement.
h. Successors and Assigns. This agreement shall be binding upon and inure
to the benefit of and be enforceable by the successors and assigns of the
parties hereto, provided that a Michael Shareholder may not assign any of his
rights or obligations hereunder to any person without the prior written consent
of Michael Minnesota. Notwithstanding the foregoing, the consent of Michael
Minnesota shall not be required in connection with the assignment of this
agreement to the estate of a Michael Shareholder.
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IN WITNESS WHEREOF, the parties hereto intending to be legally bound have
duly executed this agreement, all as of the day and year first above written.
NORTH STAR UNIVERSAL, INC.
By: /s/ JEFFREY J. MICHAEL
--------------------------------------
Its: President and Chief Executive
Officer
--------------------------------------
4J2R1C, A LIMITED PARTNERSHIP
By: /s/ JEFFREY J. MICHAEL
------------------------------------
A General Partner
3J2R, A LIMITED PARTNERSHIP
By: /s/ JEFFREY J. MICHAEL
------------------------------------
A General Partner
/s/ JAMES H. MICHAEL
--------------------------------------
JAMES H. MICHAEL
/s/ JEFFREY J. MICHAEL
--------------------------------------
JEFFREY J. MICHAEL
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<PAGE> 175
APPENDIX II
OPINION OF PIPER JAFFRAY INC.
<PAGE> 176
[PIPER JAFFRAY LETTERHEAD]
, 1996
Board of Directors
Michael Foods, Inc.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
Members of the Board:
This letter relates to the proposed merger of Michael Foods, Inc. ("Michael
Foods") and a newly formed merger subsidiary ("Merger Sub") of North Star
Universal, Inc. ("NSU") (the "Merger") pursuant to the Agreement and Plan of
Reorganization by and between Michael Foods, NSU and Merger Sub (the
"Agreement"). Prior to the Merger, NSU will transfer to a subsidiary ("Spinco")
all assets (other than its shares of Michael Foods and other mutually agreed
assets) and liabilities (other than $25 to $38 million of net debt (the "Debt"))
of NSU and will then spin off the shares of Spinco on a pro rata basis to the
NSU shareholders before the Merger. In connection with the Merger, NSU
shareholders will receive their pro rata share of Michael Foods stock owned by
NSU before the Merger after a portion of those shares are repurchased by Michael
Foods. The amount of shares repurchased will be equal to the amount of Debt
assumed by Michael Foods in the Merger divided by the product of the Discount
Factor (as defined in the Agreement) times the average price of Michael Foods
common stock during the twenty trading days ending the third trading day
immediately preceding the effective date of the Merger. It is our understanding,
and for purposes of this opinion we have assumed, that the Debt shall not be
less than $25,000,000 nor more than $38,000,000 and that NSU will have no
liabilities following the Merger other than liabilities assumed from Michael
Foods, the NSU Retained Liabilities (as defined in the Agreement) and
liabilities which are fully indemnified against by Spinco. In connection with
the Merger, all shares of Michael Foods common stock held by shareholders other
than NSU will be exchanged for NSU common stock. You have requested our opinion
as to the fairness to Michael Foods, from a financial point of view, of the
effective price per share that Michael Foods is paying NSU in the form of Debt
assumed (the "Consideration") for the shares of Michael Foods common stock that
it is repurchasing from NSU, and the exchange of Michael Foods common stock for
NSU common stock.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. Piper Jaffray makes a market in the Common Stock
of Michael Foods and also provides research coverage for Michael Foods. We acted
as comanager of public offerings of Michael Foods common stock in 1987, 1988 and
1991 and an offering of senior notes in 1989. For our services in rendering this
opinion, Michael Foods will pay us a fee and indemnify us against certain
liabilities. The fee is not contingent upon the consummation of the Merger.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the Agreement and Plan of Reorganization by and between
Michael Foods, NSU and Merger Sub dated December 21, 1995.
2. Reviewed the annual reports, Form 10-K's and audited financial
statements for Michael Foods for the three years ended December 31, 1994.
3. Reviewed the Form 10-Q's for Michael Foods for the quarters ended
March 31, June 30 and September 30, 1995.
<PAGE> 177
4. Reviewed the annual reports, Form 10-K's and audited financial
statements for NSU for the three years ended December 31, 1994.
5. Reviewed the Form 10-Q's for NSU for the quarters ended March 31,
June 30 and September 30, 1995.
6. Reviewed two-year financial forecasts for Michael Foods furnished by
Michael Foods management.
7. Conducted discussions with members of senior management of Michael
Foods, including the President and Chief Executive Officer, Chief Financial
Officer and Executive Vice President and Assistant Treasurer. Topics
discussed included, but were not limited to, the background and rationale
for the proposed Merger, the financial condition, operating performance,
balance sheet characteristics and prospects of Michael Foods business
independently and the financial and operating prospects for the combined
company after consummation of the proposed Merger.
8. Conducted discussions with members of senior management of NSU,
including the Chief Financial Officer. Topics discussed included, but were
not limited to, the background and rationale of the proposed Merger, the
financial condition, operating performance, and the balance sheet
characteristics of NSU and the prospects for the combined company after
consummation of the proposed Merger.
9. Reviewed the historical prices and trading activity for Michael Foods
common stock and NSU common stock.
10. Reviewed the financial terms, to the extent publicly available, of
certain comparable transactions which we deemed relevant.
11. Considered the proforma effect of the proposed Merger on Michael
Foods earnings per share for the two fiscal years ending December 31, 1997.
12. Compared certain financial and securities data of Michael Foods
with certain financial and securities data of companies deemed similar to
Michael Foods or representative of the business sector in which Michael
Foods operates.
13. Reviewed such other financial data, performed such other analyses
and considered such other information as we deemed necessary and
appropriate under the circumstances.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by Michael Foods, NSU or
otherwise made available to us and have not attempted independently to verify
such information. We have further relied upon the assurances of Michael Foods'
management that the information provided pertaining to Michael Foods has been
prepared on a reasonable basis and, with respect to financial planning data,
reflects the best currently available estimates and that they are not aware of
any information or facts that would make the information provided to us
incomplete or misleading. In that regard, we have assumed with your consent that
any projections or forecasts, reflect best currently available estimates and
judgments of the Michael Foods management, and that such projections and
forecasts will be realized in the amounts and in the time periods currently
estimated by the management of Michael Foods. For the purpose of this opinion,
we have assumed that neither Michael Foods nor NSU is a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the Merger or in the ordinary course of business.
We have also assumed, with your consent, that the Merger will qualify as a
tax-free exchange.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets of Michael Foods or NSU and express no opinion
regarding the liquidation value of Michael Foods or NSU. Our opinion is
necessarily based upon information available to us, facts and circumstances and
economic, market and other conditions as they exist and are subject to
evaluation on the date hereof; events occurring after the date hereof could
materially affect the assumptions used in preparing this opinion. We have not
undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date hereof. We
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express no opinion herein as to the prices at which shares of Michael Foods
common stock may trade at any future time.
This opinion is for the benefit of the Board of Directors of Michael Foods
and shall not be published or otherwise used, nor shall any public references to
Piper Jaffray be made without our written consent, except for inclusion in the
full proxy/prospectus to be sent to all stockholders of Michael Foods and NSU
and in any filings or disclosures required by law. This opinion is not intended
to be and does not constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to the Merger. In connection with this
opinion, we were not requested to opine as to, and this opinion does not
address, the merits of the basic business decision to proceed with or effect the
Merger.
Based upon and subject to the foregoing and based upon such other factors
as we consider relevant, it is our opinion that the Consideration for the
repurchase of the Michael Foods common stock and the exchange of Michael Foods
common stock for NSU common stock is fair, from a financial point of view, to
Michael Foods.
Sincerely,
PIPER JAFFRAY INC.
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<PAGE> 179
APPENDIX III
OPINION OF
GOLDSMITH, AGIO, HELMS SECURITIES INC.
<PAGE> 180
[GOLDSMITH, AGIO, HELMS SECURITIES, INC. LETTERHEAD]
, 1996
PERSONAL AND CONFIDENTIAL
Board of Directors
NORTH STAR UNIVERSAL, INC.
5353 Wayzata Boulevard -- Suite 610
Minneapolis, MN 55416-1370
RE: Fairness Opinion
Gentlemen:
In connection with the proposed transaction (the "Transaction"), consisting
of the Merger together with the Spin-off as defined below, whereby Michael
Foods, Inc. ("MFI") will merge (the "Merger") into a newly organized subsidiary
of North Star Universal, Inc. (the "Company"), immediately before the
distribution (the "Spin-off") to the Company's shareholders, as constituted
prior to the merger (the "Current Shareholders"), of all of the outstanding
shares of second newly organized subsidiary of the Company ("Spinco"), you have
requested our opinion ("Opinion") as to the fairness, from a financial point of
view, of the Transaction to the Company's Current Shareholders.
As a customary part of its investment banking business, Goldsmith, Agio,
Helms Securities, Inc. ("GAHS") is engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, private placements, and
valuations for estate, corporate, and other purposes. GAHS does not make a
market for the Company's common stock. GAHS is a party to a separate engagement
agreement with the Company whereby GAHS is providing advisory services to the
Company with respect to the Transaction, pursuant to which GAHS contingent on
consummation of the Transaction. In return for GAHS' services in connection with
providing this Opinion, the Company will pay GAHS a fee of $100,000, twenty-five
percent of which fee is not contingent upon the consummation of the Transaction,
with the balance payable to GAHS upon closing of the Transaction. In addition,
the Company will indemnify GAHS against certain liabilities.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed the Merger Agreement, the Distribution Agreement,
and financial and other information relating to the Company and MFI. We reviewed
the reported price and trading activity of the common stock of the Company and
of MFI. We compared certain financial and stock market information with respect
to the Company and MFI with similar information for certain other companies, the
securities of which are publicly traded. We have made inquiries of the Company's
management as to the Company's financial condition, operating results, business
outlook, plans and opportunities.
We have relied upon and assume the accuracy, completeness, and fairness of
the financial statements and other information of the Company, and have not
attempted independently to verify such information. We have further relied upon
assurances by the Company that the information provided to us has a reasonable
basis, and with respect to projections and other business outlook information,
reflects the best currently available estimates, and that the Company is not
aware of any information or fact that would make the information provided to us
incomplete or misleading. Our Opinion is not based on any specific appraisal of
the liquidation value of the Company, or any of its assets, or of Spinco. We are
not expressing any Opinion as to the prices at which shares of common stock of
Spinco or the Company or MFI will trade subsequent to the date of the
Transaction, and we are not expressing any Opinion as to the prices at which
shares of the Company's or MFI's common stock have traded prior to the date of
the Transaction. Our Opinion is based upon the information available to us and
the facts and circumstances as they exist and are subject to evaluation on the
date hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this Opinion. We did not actively solicit
indications of interest or value from any third parties for the Company or any
of its assets, and we did not solicit indications of interest or value from any
third parties for MFI. We
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were not requested to opine, and do not opine, in any way concerning other
transactions or agreements entered into in conjunction with the Transaction.
Our opinion is rendered to the Board of Directors of the Company and cannot
be relied upon by any other person, nor published or otherwise used or referred
to publicly, except as provided in our letter of engagement.
Based upon and subject to the foregoing, and based upon such other facts as
we consider relevant, it is our opinion that, as of the date hereof, the
Transaction is fair to the Company's Current Shareholders from a financial point
of view.
Sincerely,
Goldsmith, Agio, Helms Securities Inc.
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<PAGE> 182
APPENDIX IV
EXCERPT FROM
THE MINNESOTA BUSINESS CORPORATION ACT
REGARDING DISSENTERS' RIGHTS
<PAGE> 183
SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA BUSINESS CORPORATION ACT-
DISSENTERS' RIGHTS
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new
class or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
SUBD. 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
SUBD. 3. RIGHTS NOT TO APPLY. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
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SUBD. 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
SUBDIVISION 1. DEFINITIONS. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
SUBD. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBD. 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
SUBD. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
SUBD. 5. PAYMENT; RETURN OF SHARES. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date
of the corporate action, together With the latest available interim
financial statements;
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(2) An estimate by the corporation of the fair value of the shares and
a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a) a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
SUBD. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
SUBD. 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of 180 civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
SUBD. 8. COSTS; FEES; EXPENSES. (a) The court shall determine the costs and
expenses of a proceeding under subdivision 7, including the reasonable expenses
and compensation of any appraisers appointed by the court, and shall assess
those costs and expenses against the corporation, except that the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment under subdivision 6 is found to be arbitrary, vexatious, or
not in good faith.
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(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Officers and Directors.
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best
interests of the corporation in the case of acts or omissions in such person's
official capacity for the corporation or reasonably believed that the conduct
was not opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated
organizations. The Articles of Incorporation of ENStar provides that ENStar
shall indemnify officers and directors to the extent permitted by Section
302A.521 as now enacted or hereafter amended.
ENStar will also maintain an insurance policy or policies to assist in
funding indemnification of directors and officers for certain liabilities.
ITEM 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
2 Agreement and Plan of Reorganization, dated as of December
21,1995, by and among North Star Universal, Inc., Michael
Foods, Inc. and NSU Merger Co. (included as Appendix I to the
Proxy Statement/Prospectus that forms a part of this
Registration Statement on Form S-4 (schedules omitted--the
Registrant agrees to furnish a copy of any schedule to the
Commission upon request)).
*3.1 Articles of Incorporation of ENStar Inc.
*3.2 Bylaws of ENStar Inc.
4.1 Form of Indenture, dated as of April 26, 1989, between the
Company and National City Bank of Minneapolis, as trustee
(filed as Exhibit 4.1 to Registration No. 33-26176 and
incorporated herein by reference).
4.2 Form of First Supplemental Indenture, dated as of March 16,
1992, amending the Indenture described in Exhibit 4.1 above
(filed as Exhibit 4.2 to Registration No. 33-46418 and
incorporated herein by reference).
4.3 Form of Second Supplemental Indenture, dated as of March 16,
1995, amending the Indenture described in Exhibit 4.1 above
(filed as Exhibit 4.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 and incorporated
herein by reference).
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4.4 Indenture, dated as of December 1, 1986, between the Company
and National City Bank of Minneapolis, as trustee, relating to
$25,000,000 principal amount of Subordinated Debentures Series
87/88 (filed as Exhibit 4.1 to Registration No. 33-10558 and
incorporated herein by reference).
4.5 Indenture, dated as of September, 1985, between the Company
and American National Bank and Trust Company, as trustee,
relating to $14,000,000 principal amount of Subordinated
Debentures, Series 1985 (filed as Exhibit 4 to Registration
No. 2-99100 and incorporated herein by reference).
*4.6 Specimen certificate for shares of Common Stock of ENStar Inc.
*5 Opinion of Dorsey & Whitney LLP regarding the validity of
ENStar Inc. Common Stock to be issued.
*10.1 ENStar 1996 Stock Incentive Plan, including form of Stock
Option Agreement related thereto.
10.2 Loan Agreement, dated as of May 1, 1989, between the City of
Welcome, Minnesota and Eagle relating to $1,470,000 Industrial
Development Revenue Bonds, Series 1989, Eagle Engineering and
Manufacturing Company, Inc. Project (filed as Exhibit 10.15 to
Registration No. 33-26176 and incorporated herein by
reference).
10.3 Mortgage and Security Agreement, dated as of May 1, 1989,
securing the obligations of Eagle under the Loan Agreement
described in Exhibit 10.11 above, pursuant to which Eagle
granted a mortgage to American National Bank and Trust
Company, St. Paul, Minnesota, as trustee under that certain
Indenture, dated as of May 1, 1989, relating to its facility
in Welcome, Minnesota (filed as Exhibit 10.16 to Registration
No. 33-26176 and incorporated herein by reference).
10.4 Guaranty Agreement, dated as of May 1, 1989, executed by the
Company as guarantor, pursuant to which the Company guaranties
the obligations of Eagle under the Loan Agreement described in
Exhibit 10.11 above (filed as Exhibit 10.17 to Registration
No. 33-26176 and incorporated herein by reference).
10.5 Form of North Star Indemnification Agreement, dated May ___,
1991, between the Company and FORTIS Corporation (filed as
Exhibit 10.20 to Registration No. 33-40629 and incorporated
herein by reference).
10.6 Amended and Restated Loan and Security Agreement dated June 1,
1993 among Americable, Inc., Transition Engineering, Inc.,
Cable Distributions Systems, Inc. and First Bank National
Association (filed as Exhibit 10.31 to the Company's quarterly
report on Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference.)
10.6 Subordination Agreement executed by the Company and Americable
for the benefit of First Bank in connection with the loans
described in Exhibit 10.6 above (filed as Exhibit 4.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
10.7 First Amendment to Amended and Restated Loan and Security
Agreement, dated November 29, 1993, among Americable, Inc.,
Transition Engineering, Inc., Cable
II-2
<PAGE> 189
Distributions Systems, Inc. and First Bank National
Association, amending the terms of the Amended and Restated
Loan and Security Agreement described in 10.6 above (filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated herein by
reference).
10.8 Waiver and Second Amendment to Amended and Restated Loan and
Security Agreement, dated as of March 3, 1995, among
Americable, Inc., Transition Engineering, Inc., Cable
Distributions Systems, Inc. and First Bank National
Association,amending the terms of the Amended and Restated
Loan and Security Agreement described in 10.6 above (filed as
Exhibit 10.27 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated herein by
reference).
10.9 Supplement A to Amended and Restated Loan and Security
Agreement, dated June 1, 1993, among Americable, Inc.,
Transition Engineering, Inc., Cable Distributions Systems,
Inc. and First Bank National Association, supplementing the
terms of the Amended and Restated Loan and Security Agreement
described in 10.6 above (filed as Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, and incorporated herein by reference).
10.10 Stock Purchase Agreement dated May 5, 1995, by and between
Amdahl Corporation and North Star Universal, Inc. relating to
the sale of C.E. Services (filed as Exhibit 10.31 to the
Quarterly Report on Form 10-Q for North Star Universal, Inc.
for the quarter ending March 31, 1995).
*10.11 Lease Agreement dated June 13, 1995 between Transition and
West Life & Annuity Insurance Company for lease of premises at
6475 City West Parkway, Eden Prairie, Minnesota.
*10.12 Lease Agreement dated February 21, 1989 between Americable and
Ryan/Flying Cloud Associates Limited Partnership, including
amendments thereto, for the lease of premises at 7450 Flying
Cloud Drive, Eden Prairie, Minnesota.
*10.13 Lease of Unit 4 Bracknell Business Centre, Downmill Road,
Bracknell, Berkshire, United Kingdom dated August 1, 1984
between Queensgate Developments Limited and The Burton Group
Public Limited Company and assigned to C.E. Services (Europe)
Ltd. (f.k.a. Landmark Communications Services Limited)
guaranteed by C.E. Services, Inc. (as the successor in
interest to Landmark Communications Services, Inc.) pursuant
to a License to Assign dated March 15, 1990 and assumed by NSU
in connection with the Stock Purchase Agreement by and
between Amdahl Corporation and NSU dated May 5, 1995.
*10.14 Lease of Unit 5 Bracknell Business Centre, Downmill Road,
Bracknell, Berkshire, United Kingdom dated March 22, 1985,
between Benton Nominees Limited and Robert David Grant and
Susan Margaret Grant trading as Grants Electrical Supplies and
assigned to C.E. Services (Europe) Ltd. (f.k.a. Landmark
Communications Services Limited) and guaranteed by Richard
Charles Jones and Dennis Leonard Western pursuant to a License
to Assign dated June 28, 1991 and assumed by NSU in connection
with a Stock Purchase Agreement by and between Amdahl
Corporation and NSU dated May 5, 1995.
10.15 Employment Agreement, dated April 1, 1993, between North Star
Universal,Inc., Transition Engineering, Inc. and Peter E.
Flynn (filed as Exhibit 10.22 to the Company's
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<PAGE> 190
Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).
*10.16 Employment Agreement dated September 27, 1989 between
Americable, Inc. and Gary L. Eizenga (including Stock Option
Agreement relating thereto).
*10.17 Employment Agreement dated May 1, 1992 between Transition
Engineering, Inc. and Gary M. Doan.
*10.18 Stock Option Agreement dated May 1, 1992 between Transition
Engineering, Inc. and Gary M. Doan.
23.1 Consent of Dorsey & Whitney LLP (contained in Exhibit 5).
*23.2 Consent of Grant Thornton LLP as independent public
accountants to Michael and NSU.
*23.3 Consent of Ernst & Young LLP as independent public accountants
to CorVel Corporation.
*23.4 Consent of Piper Jaffray Inc.
*23.5 Consent of Goldsmith, Agio, Helms Securities Inc.
*24 Power of Attorney.
*27.1 Financial Data Schedules.
*99.1 Form of Proxy Card for the Annual Meeting.
- --------------------
* Filed herewith.
(b) Financial Statement Schedules. Included herewith
(c) Not applicable.
ITEM 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
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<PAGE> 191
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b)(1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of
and included in the Registration Statement when it became effective.
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<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on March 20, 1996.
ENSTAR INC.
By /s/ Jeffrey J. Michael
---------------------------
Jeffrey J. Michael,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
By /s/ Jeffrey J. Michael Dated: March 20, 1996
--------------------------------------
Jeffrey J. Michael
President, Chief Executive Officer and Director
(principal executive officer)
By /s/Thomas Wargolet Dated: March 20, 1996
--------------------------------------
Thomas Wargolet
Vice President, Chief Financial Officer
(principal financial and accounting officer)
By * Dated: March 20, 1996
------------------------------------
Miles E. Efron
Director
By * Dated: March 20, 1996
------------------------------------
James H. Michael
Chairman of the Board of Directors
By * Dated: March 20, 1996
------------------------------------
Richard J. Braun
Director
*By /s/ Jeffrey J. Michael
--------------------------------------
Jeffrey J. Michael
As Attorney-In-Fact
</TABLE>
II-6
<PAGE> 193
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors and Shareholders
North Star Universal, Inc.
In connection with our audit of the combined financial statements of
ENStar (an operating unit of North Star Universal, Inc.) referred to in our
report dated February 15, 1996, we have also audited Schedule II for each of the
three years in the period ended December 31, 1995. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 15, 1996
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<PAGE> 194
ENStar
(An Operating Unit of North Star Universal, Inc.)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31,
(In thousands)
<TABLE>
<CAPTION>
Additions
-----------------------
Charges
Balance at Charged to to Other Balance
Beginning Costs and Accounts Deductions- at End of
Description of Period Expenses Describe Describe(1) Other(2) Period
- ----------- --------- -------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts:
1993 $258 $220 -- $ (92) $(42) $344
1994 344 115 -- (126) -- 333
1995 333 135 -- (68) -- 400
</TABLE>
(1) Write off of accounts deemed uncollectible.
(2) Represents effect of restructuring charges.
II-8
<PAGE> 195
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
3.1 Articles of Incorporation of ENStar Inc.
3.2 Bylaws of ENStar Inc.
4.6 Specimen certificate for shares of Common Stock of ENStar
Inc.
5 Opinion of Dorsey & Whitney LLP regarding the validity of
ENStar Inc. Common Stock to be issued.
10.1 ENStar 1996 Stock Incentive Plan, including form of Stock
Option Agreement related thereto.
10.11 Lease Agreement dated June 13, 1995 between Transition
and West Life & Annuity Insurance Company for lease of
premises at 6475 City West Parkway, Eden Prairie,
Minnesota.
10.12 Lease Agreement dated February 21, 1989 between
Americable and Ryan/Flying Cloud Associates Limited
Partnership, including amendments thereto, for the lease
of premises at 7450 Flying Cloud Drive, Eden Prairie,
Minnesota.
10.13 Lease of Unit 4 Bracknell Business Centre, Downmill Road,
Bracknell, Berkshire, United Kingdom dated August 1, 1984
between Queensgate Developments Limited and The Burton
Group Public Limited Company and assigned to C.E.
Services (Europe) Ltd. (f.k.a. Landmark Communications
Services Limited) guaranteed by C.E. Services, Inc. (as
the successor in interest to Landmark Communications
Services, Inc.) pursuant to a License to Assign dated
March 15, 1990 and assumed by NSU in connection with the
Stock Purchase Agreement by and between Amdahl
Corporation and NSU dated May 5, 1995.
10.14 Lease of Unit 5 Bracknell Business Centre, Downmill Road,
Bracknell, Berkshire, United Kingdom dated March 22,
1985, between Benton Nominees Limited and Robert David
Grant and Susan Margaret Grant trading as Grants
Electrical Supplies and assigned to C.E. Services
(Europe) Ltd. (f.k.a. Landmark Communications Services
Limited) and guaranteed by Richard Charles Jones and
Dennis Leonard Western pursuant to a License to Assign
dated June 28, 1991 and assumed by NSU in connection with
a Stock Purchase Agreement by and between Amdahl
Corporation and NSU dated May 5, 1995.
10.16 Employment Agreement dated October 2, 1989 between
Americable, Inc. and Gary L. Eizenga.
10.17 Employment Agreement dated May 1, 1992 between Transition
Engineering, Inc. and Gary M. Doan.
10.18 Stock Option Agreement dated May 1, 1992 between
Transition Engineering, Inc. and Gary M. Doan.
<PAGE> 196
23.2 Consent of Grant Thornton LLP as independent public
accountants to Michael, NSU and ENStar
23.3 Consent of Ernst & Young LLP as independent public
accountants to CorVel Corporation.
23.4 Consent of Piper Jaffray Inc.
23.5 Consent of Goldsmith, Agio, Helms Securities Inc.
24 Power of Attorney.
27.1 Financial Data Schedules
99.1 Form of Proxy Card for the Annual Meeting.
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
ENSTAR INC.
The following Restated Articles of Incorporation shall
supersede and take the place of the existing Articles of Incorporation and all
amendments thereto:
ARTICLE 1. NAME
The name of the corporation is ENStar Inc.
ARTICLE 2. REGISTERED OFFICE
The address of the registered office of the corporation is 610
Park National Bank Building, 5353 Wayzata Boulevard, Minneapolis, Minnesota
55416.
ARTICLE 3. AUTHORIZED SHARES
1. Authorized Shares.
The total number of shares of capital stock which the
corporation is authorized to issue shall be 100,000,000 shares, consisting of
80,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
and 20,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"). All shares of Common Stock of the Company outstanding as of the date
filing of these Restated Articles of Incorporation shall have a par value of
$.01 per share.
2. Common Stock.
All shares of Common Stock shall be voting shares and shall be
entitled to one vote per share. Subject to any preferential rights of holders
of Preferred Stock, Holders of Common Stock shall be entitled to receive their
pro rata share, based upon the number of shares of Common Stock held by them,
of such dividends or other distributions as may be declared by the board of
directors from time to time and of any distribution of the assets of the
corporation upon its liquidation, dissolution or winding up, whether voluntary
or involuntary.
3. Preferred Stock.
The board of directors of the corporation is hereby authorized
to provide, by resolution or resolutions adopted by such board, for the
issuance of Preferred Stock from time to time in one or more classes and/or
series, to establish
<PAGE> 2
the designation and number of shares of each such class or series, and to fix
the relative rights and preferences of the shares of each such class or series,
all to the full extent permitted by the Minnesota Business Corporation Act,
Section 302A.401, or any successor provision. Without limiting the generality
of the foregoing, the board of directors is authorized to provide that shares
of a class or series of Preferred Stock:
(a) are entitled to cumulative, partially cumulative or
noncumulative dividends or other distributions payable in cash,
capital stock or indebtedness of the corporation or other property, at
such times and in such amounts as are set forth in the board
resolutions establishing such class or series or as are determined in
a manner specified in such resolutions;
(b) are entitled to a preference with respect to payment of
dividends over one or more other classes and/or series of capital
stock of the corporation;
(c) are entitled to a preference with respect to any
distribution of assets of the corporation upon its liquidation,
dissolution or winding up over one or more other classes and/or series
of capital stock of the corporation in such amount as is set forth in
the board resolutions establishing such class or series or as is
determined in a manner specified in such resolutions;
(d) are redeemable or exchangeable at the option of the
corporation and/or on a mandatory basis for cash, capital stock or
indebtedness of the corporation or other property, at such times or
upon the occurrence of such events, and at such prices, as are set
forth in the board resolutions establishing such class or series or as
are determined in a manner specified in such resolutions;
(e) are entitled to the benefits of such sinking fund, if any,
as is required to be established by the corporation for the redemption
and/or purchase of such shares by the board resolutions establishing
such class or series;
(f) are convertible at the option of the holders thereof into
shares of any other class or series of capital stock of the
corporation, at such times or upon the occurrence of such events, and
upon such terms, as are set forth in the board resolutions
establishing such class or series or as are determined in a manner
specified in such resolutions;
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<PAGE> 3
(g) are exchangeable at the option of the holders thereof for
cash, capital stock or indebtedness of the corporation or other
property, at such times or upon the occurrence of such events, and at
such prices, as are set forth in the board resolutions establishing
such class or series or as are determined in a manner specified in
such resolutions;
(h) are entitled to such voting rights, if any, as are
specified in the board resolutions establishing such class or series
(including, without limiting the generality of the foregoing, the
right to elect one or more directors voting alone as a single class or
series or together with one or more other classes and/or series of
Preferred Stock, if so specified by such board resolutions) at all
times or upon the occurrence of specified events; and
(i) are subject to restrictions on the issuance of additional
shares of Preferred Stock of such class or series or of any other
class or series, or on the reissuance of shares of Preferred Stock of
such class or series or of any other class or series, or on increases
or decreases in the number of authorized shares of Preferred Stock of
such class or series or of any other class or series.
Without limiting the generality of the foregoing authorizations, any of the
rights and preferences of a class or series of Preferred Stock may be made
dependent upon facts ascertainable outside the board resolutions establishing
such class or series, and may incorporate by reference some or all of the terms
of any agreements, contracts or other arrangements entered into by the
corporation in connection with the issuance of such class or series, all to the
full extent permitted by the Minnesota Business Corporation Act. Unless
otherwise specified in the board resolutions establishing a class or series of
Preferred Stock, holders of a class or series of Preferred Stock shall not be
entitled to cumulate their votes in any election of directors in which they are
entitled to vote and shall not be entitled to any preemptive rights to acquire
shares of any class or series of capital stock of the corporation.
ARTICLE 4. NO CUMULATIVE VOTING
There shall be no cumulative voting by the shareholders of the
corporation.
-3-
<PAGE> 4
ARTICLE 5. NO PREEMPTIVE RIGHTS
The shareholders of the corporation shall not have any
preemptive rights to subscribe for or acquire securities or rights to purchase
securities of any class, kind or series of the corporation.
ARTICLE 6. BOARD OF DIRECTORS
The number of directors shall initially be five and,
thereafter, shall be fixed from time to time by the board of directors or by
the affirmative vote of the holders of at least a majority of the voting power
of the outstanding Common Stock of the corporation.
Newly created directorships resulting from any increase in the
authorized number of directors or vacancies in the board of directors resulting
from death, resignation, retirement, disqualification, removal from office or
other cause may be filled by a majority vote of the directors then in office
though less than a quorum, and directors so chosen shall hold office for a term
expiring at the next annual meeting of shareholders at which a vote is held
with respect to the class for which such director has been chosen. No decrease
in the number of directors constituting the board of directors shall shorten
the term of any incumbent director.
ARTICLE 7. WRITTEN ACTION BY DIRECTORS
An action required or permitted to be taken at a meeting of
the board of directors of the corporation may be taken by a written action
signed, or counterparts of a written action signed in the aggregate, by all of
the directors unless the action need not be approved by the shareholders of the
corporation, in which case the action may be taken by a written action signed,
or counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
board of directors of the corporation at which all of the directors were
present.
ARTICLE 8. DIRECTOR LIABILITY
To the fullest extent permitted by the Minnesota Business
Corporation Act as the same exists or may hereafter be amended, a director of
this corporation shall not be liable to this corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director.
-4-
<PAGE> 5
ARTICLE 9. INDEMNIFICATION
The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action by or in the right of the corporation)
to the full extent permitted by the Minnesota Business Corporation Act.
-5-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
ENSTAR INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01.Registered Office. The registered office of the
corporation in Minnesota shall be that set forth in the articles of
incorporation or in the most recent amendment of the articles of incorporation
or resolution of the directors filed with the secretary of state of Minnesota
changing the registered office.
Section 1.02.Other Offices. The corporation may have such other
offices, within or without the state of Minnesota, as the directors shall, from
time to time, determine.
Section 1.03.Corporate Seal. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01.Place and Time of Meetings. Except as provided
otherwise by the Minnesota Business Corporation Act, meetings of the
shareholders may be held at any place, within or without the state of
Minnesota, as may from time to time be designated by the directors and, in the
absence of such designation, shall be held at the registered office of the
corporation in the state of Minnesota. The directors shall designate the time
of day for each meeting and, in the absence of such designation, every meeting
of shareholders shall be held at ten o'clock a.m.
Section 2.02.Regular Meetings.
(a)A regular meeting of the shareholders shall be held on such date
as the board of directors shall by resolution establish.
(b)At a regular meeting the shareholders, voting as provided in the
articles of incorporation and these bylaws, shall designate the number of
directors to constitute the board of directors (subject to the authority of the
board of directors thereafter to increase or decrease the number of directors
as permitted by law), shall elect qualified successors for directors who serve
for an indefinite term or whose terms have expired or are due to expire within
six months after the date of the meeting and shall transact such other business
as may properly come before them.
<PAGE> 2
Section 2.03.Special Meetings. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the chief
executive officer, the chief financial officer, two or more directors or by a
shareholder or shareholders holding 10% or more of the voting power of all
shares entitled to vote, except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or affect a
business combination, including any action to change or otherwise affect the
composition of the board of directors for that purpose, must be called by 25%
or more of the voting power of all shares entitled to vote. A shareholder or
shareholders holding the requisite percentage of the voting power of all shares
entitled to vote may demand a special meeting of the shareholders by written
notice of demand given to the chief executive officer or chief financial
officer of the corporation and containing the purposes of the meeting. Within
30 days after receipt of demand by one of those officers, the board of
directors shall cause a special meeting of shareholders to be called and held
on notice no later than 90 days after receipt of the demand, at the expense of
the corporation. Special meetings shall be held on the date and at the time
and place fixed by the chief executive officer or the board of directors,
except that a special meeting called by or at demand of a shareholder or
shareholders shall be held in the county where the principal executive office
is located. The business transacted at a special meeting shall be limited to
the purposes as stated in the notice of the meeting.
Section 2.04.Quorum, Adjourned Meetings. The holders of a majority
of the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. In case a quorum shall not be
present at a meeting, the meeting may be adjourned from time to time without
notice other than announcement at the time of adjournment of the date, time and
place of the adjourned meeting. If a quorum is present, a meeting may be
adjourned from time to time without notice other than announcement at the time
of adjournment of the date, time and place of the adjourned meeting. At
adjourned meetings at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed. If a
quorum is present when a meeting is convened, the shareholders present may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders originally present to leave less than a quorum.
Section 2.05.Voting. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the articles of incorporation or
statutes provide otherwise, shall have one vote for each share having voting
power registered in such shareholder's name on the books of the corporation.
Jointly owned shares may be voted by any joint owner unless the corporation
receives written notice from any one of them denying the authority of that
person to vote those shares. Upon the demand of any
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<PAGE> 3
shareholder, the vote upon any question before the meeting shall be by ballot.
All questions shall be decided by a majority vote of the number of shares
entitled to vote and represented at the meeting at the time of the vote except
if otherwise required by statute, the articles of incorporation, or these
bylaws.
Section 2.06.Record Date. The board of directors may fix a date,
not exceeding 60 days preceding the date of any meeting of shareholders, as a
record date for the determination of the shareholders entitled to notice of,
and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. If the board of
directors fails to fix a record date for determination of the shareholders
entitled to notice of, and to vote at, any meeting of shareholders, the record
date shall be the 20th day preceding the date of such meeting.
Section 2.07.Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his or her address as shown by the books of the corporation,
a notice setting out the time and place of each regular meeting and each
special meeting, except (unless otherwise provided in section 2.04 hereof)
where the meeting is an adjourned meeting and the date, time and place of the
meeting were announced at the time of adjournment, which notice shall be mailed
at least five days prior thereto (unless otherwise provided in section 2.04
hereof); except that notice of a meeting at which a plan of merger or exchange
is to be considered shall be mailed to all shareholders of record, whether
entitled to vote or not, at least fourteen days prior thereto. Every notice of
any special meeting called pursuant to section 2.03 hereof shall state the
purpose or purposes for which the meeting has been called, and the business
transacted at all special meetings shall be confined to the purposes stated in
the notice. The written notice of any meeting at which a plan of merger or
exchange is to be considered shall so state such as a purpose of the meeting.
A copy or short description of the plan of merger or exchange shall be included
in or enclosed with such notice.
Section 2.08.Waiver of Notice. Notice of any regular or special
meeting may be waived by any shareholder either before, at or after such
meeting orally or in writing signed by such shareholder or a representative
entitled to vote the shares of such shareholder. A shareholder, by his or her
attendance at any meeting of shareholders, shall be deemed to have waived
notice of such meeting, except where the shareholder objects at the beginning
of the meeting to the transaction of business because the meeting is not
lawfully called or convened, or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and does not
participate in the consideration of the item at that meeting.
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Section 2.09.Written Action. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action.
ARTICLE III.
DIRECTORS
Section 3.01.General Powers. The business and affairs of the
corporation shall be managed by or under the authority of the board of
directors, except as otherwise permitted by statute.
Section 3.02.Number, Qualification and Term of Office. Until the
organizational meeting of the board of directors, the number of directors shall
be the number named in the articles of incorporation. Thereafter, the number
of directors shall be increased or decreased from time to time by resolution of
the board of directors or the shareholders. Directors need not be
shareholders. Each of the directors shall hold office until the regular
meeting of shareholders next held after such director's election and until such
director's successor shall have been elected and shall qualify, or until the
earlier death, resignation, removal, or disqualification of such director.
Section 3.03.Board Meetings. Meetings of the board of directors may
be held from time to time at such time and place within or without the state of
Minnesota as may be designated in the notice of such meeting.
Section 3.04.Calling Meetings; Notice. Meetings of the board of
directors may be called by the chairman of the board by giving at least
twenty-four hours' notice, or by any other director by giving at least five
days' notice, of the date, time and place thereof to each director by mail,
telephone, telegram or in person. If the day or date, time and place of a
meeting of the board of directors has been announced at a previous meeting of
the board, no notice is required. Notice of an adjourned meeting of the board
of directors need not be given other than by announcement at the meeting at
which adjournment is taken.
Section 3.05.Waiver of Notice. Notice of any meeting of the board
of directors may be waived by any director either before, at, or after such
meeting orally or in a writing signed by such director. A director, by his or
her attendance at any meeting of the board of directors, shall be deemed to
have waived notice of such meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened and does not participate thereafter in the
meeting.
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Section 3.06.Quorum. A majority of the directors holding office
immediately prior to a meeting of the board of directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07.Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the board of
directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect
as the proposal to which the director has consented or objected.
Section 3.08.Conference Communications. Any or all directors may
participate in any meeting of the board of directors, or of any duly
constituted committee thereof, by any means of communication through which the
directors may simultaneously hear each other during such meeting. For the
purposes of establishing a quorum and taking any action at the meeting, such
directors participating pursuant to this section 3.08 shall be deemed present
in person at the meeting; and the place of the meeting shall be the place of
origination of the conference telephone conversation or other comparable
communication technique.
Section 3.09.Vacancies; Newly Created Directorships. Vacancies on
the board of directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the board although less than a
quorum; newly created directorships resulting from an increase in the
authorized number of directors by action of the board of directors as permitted
by section 3.02 may be filled by a majority vote of the directors serving at
the time of such increase; and each director elected pursuant to this section
3.09 shall be a director until such director's successor is elected by the
shareholders at their next regular or special meeting.
Section 3.10.Removal. Any or all of the directors may be removed
from office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election
of directors except, as otherwise provided by the Minnesota Business
Corporation Act, Section 302A.223, as amended, when the shareholders have the
right to cumulate their votes. A director named by the board of directors to
fill a vacancy may be removed from office at any time, with or without cause,
by the affirmative vote of the remaining directors if the shareholders have not
elected directors in the interim between the time of the appointment to fill
such vacancy and the time of the removal. In the
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event that the entire board or any one or more directors be so removed, new
directors may be elected at the same meeting.
Section 3.11.Committees. A resolution approved by the affirmative
vote of a majority of the board of directors may establish committees having
the authority of the board in the management of the business of the corporation
to the extent provided in the resolution. A committee shall consist of one or
more persons, who need not be directors, appointed by affirmative vote of a
majority of the directors present. Committees are subject to the direction and
control of, and vacancies in the membership thereof shall be filled by, the
board of directors.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion
or number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.12.Written Action. Any action which might be taken at a
meeting of the board of directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members, unless the articles provide otherwise and the
action need not be approved by the shareholders.
Section 3.13.Compensation. Directors who are not salaried officers
of this corporation shall receive such fixed sum per meeting attended or such
fixed annual sum as shall be determined, from time to time, by resolution of
the board of directors. The board of directors may, by resolution, provide
that all directors shall receive their expenses, if any, of attendance at
meetings of the board of directors or any committee thereof. Nothing herein
contained shall be construed to preclude any director from serving this
corporation in any other capacity and receiving proper compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01.Number. The officers of the corporation shall consist
of a chairman of the board (if one is elected by the board), the president, one
or more vice presidents (if desired by the board), a treasurer, a secretary (if
one is elected by the board) and such other officers and agents as may, from
time to time, be elected by the board of directors. Any number of offices may
be held by the same person.
Section 4.02.Election, Term of Office and Qualifications. The board
of directors shall elect or appoint, by resolution approved by the affirmative
vote of a
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majority of the directors present, from within or without their number, the
president, treasurer and such other officers as may be deemed advisable, each
of whom shall have the powers, rights, duties, responsibilities, and terms of
office provided for in these bylaws or a resolution of the board of directors
not inconsistent therewith. The president and all other officers who may be
directors shall continue to hold office until the election and qualification of
their successors, notwithstanding an earlier termination of their directorship.
Section 4.03.Removal and Vacancies. Any officer may be removed from
his or her office by the board of directors at any time, with or without cause.
Such removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy in an office of the corporation by
reason of death, resignation or otherwise, such vacancy shall be filled for the
unexpired term by the board of directors.
Section 4.04.Chairman of the Board. The chairman of the board, if
one is elected, shall preside at all meetings of the shareholders and directors
and shall have such other duties as may be prescribed, from time to time, by
the board of directors.
Section 4.05.President. The president shall be the chief executive
officer and shall have general active management of the business of the
corporation. In the absence of the chairman of the board, he or she shall
preside at all meetings of the shareholders and directors. He or she shall see
that all orders and resolutions of the board of directors are carried into
effect. He or she shall execute and deliver, in the name of the corporation,
any deeds, mortgages, bonds, contracts or other instruments pertaining to the
business of the corporation unless the authority to execute and deliver is
required by law to be exercised by another person or is expressly delegated by
the articles or bylaws or by the board of directors to some other officer or
agent of the corporation. He or she shall maintain records of and, whenever
necessary, certify all proceedings of the board of directors and the
shareholders, and in general, shall perform all duties usually incident to the
office of the president. He or she shall have such other duties as may, from
time to time, be prescribed by the board of directors.
Section 4.06.Vice President. Each vice president, if one or more is
elected, shall have such powers and shall perform such duties as prescribed by
the board of directors or by the president. In the event of the absence or
disability of the president, the vice president(s) shall succeed to his or her
power and duties in the order designated by the board of directors.
Section 4.07.Secretary. The secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and board of
directors and shall
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record all proceedings of such meetings in the minute book of the corporation.
He or she shall give proper notice of meetings of shareholders and directors.
He or she shall perform such other duties as may, from time to time, be
prescribed by the board of directors or by the president.
Section 4.08.Treasurer. The treasurer shall be the chief financial
officer and shall keep accurate financial records for the corporation. He or
she shall deposit all moneys, drafts and checks in the name of, and to the
credit of, the corporation in such banks and depositories as the board of
directors shall, from time to time, designate. He or she shall have power to
endorse, for deposit, all notes, checks and drafts received by the corporation.
He or she shall disburse the funds of the corporation, as ordered by the board
of directors, making proper vouchers therefor. He or she shall render to the
president and the directors, whenever requested, an account of all his or her
transactions as treasurer and of the financial condition of the corporation,
and shall perform such other duties as may, from time to time, be prescribed by
the board of directors or by the president.
Section 4.09.Compensation. The officers of the corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the board of directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01.Certificates for Shares. All shares of the corporation
shall be certificated shares. Every owner of shares of the corporation shall
be entitled to a certificate, to be in such form as shall be prescribed by the
board of directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the president and by the secretary or an assistant secretary or
by such officers as the board of directors may designate. If the certificate
is signed by a transfer agent or registrar, such signatures of the corporate
officers may be by facsimile if authorized by the board of directors. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in section 5.04.
Section 5.02.Issuance of Shares. The board of directors is
authorized to cause to be issued shares of the corporation up to the full
amount authorized by the articles of incorporation in such amounts as may be
determined by the board of directors and as may be permitted by law. Shares
may be issued for any
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consideration, including, without limitation, in consideration of cash or other
property, tangible or intangible, received or to be received by the corporation
under a written agreement, of services rendered or to be rendered to the
corporation under a written agreement, or of an amount transferred from surplus
to stated capital upon a share dividend. At the time of approval of the
issuance of shares, the board of directors shall state, by resolution, its
determination of the fair value to the corporation in monetary terms of any
consideration other than cash for which shares are to be issued.
Section 5.03.Transfer of Shares. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat as the absolute owner
of shares of the corporation, the person or persons in whose name shares are
registered on the books of the corporation.
Section 5.04.Loss of Certificates. Except as otherwise provided by
the Minnesota Business Corporation Act, Section 302A.419, any shareholder
claiming a certificate for shares to be lost, stolen, or destroyed shall make
an affidavit of that fact in such form as the board of directors shall require
and shall, if the board of directors so requires, give the corporation a bond
of indemnity in form, in an amount, and with one or more sureties satisfactory
to the board of directors, to indemnify the corporation against any claim which
may be made against it on account of the reissue of such certificate, whereupon
a new certificate may be issued in the same tenor and for the same number of
shares as the one alleged to have been lost, stolen or destroyed.
ARTICLE VI.
DISTRIBUTIONS, RECORD DATE
Section 6.01.Distributions. Subject to the provisions of the
articles of incorporation, of these bylaws, and of law, the board of directors
may authorize and cause the corporation to make distributions whenever, and in
such amounts or forms as, in its opinion, are deemed advisable.
Section 6.02.Record Date. Subject to any provisions of the articles
of incorporation, the board of directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any distribution as the record date
for the determination of the shareholders entitled to receive payment of the
distribution and, in such case, only shareholders of record on the date so
fixed shall be entitled to
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receive payment of such distribution notwithstanding any transfer of shares on
the books of the corporation after the record date.
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01.Share Register. The board of directors of the
corporation shall cause to be kept at its principal executive office, or at
another place or places within the United States determined by the board:
(1) a share register not more than one year old, containing the
names and addresses of the shareholders and the number and
classes of shares held by each shareholder; and
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02.Other Books and Records. The board of directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its Minnesota
registered office within ten days after receipt by an officer of the
corporation of a written demand for them made by a shareholder or other person
authorized by the Minnesota Business Corporation Act, Section 302A.461,
originals or copies of:
(1) records of all proceedings of shareholders for the last three
years;
(2) records of all proceedings of the board for the last three
years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by the Minnesota Business
Corporation Act, Section 302A.463 and the financial
statements for the most recent interim period prepared in the
course of the operation of the corporation for distribution
to the shareholders or to a governmental agency as a matter
of public record;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers; and
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(8) any shareholder voting or control agreements of which the
corporation is aware.
Section 7.03.Fiscal Year. The fiscal year of the corporation shall
be determined by the board of directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01.The corporation may lend money to, guarantee an
obligation of, become a surety for, or otherwise financially assist a person if
the transaction, or a class of transactions to which the transaction belongs,
is approved by the affirmative vote of a majority of the directors present,
and:
(1) is in the usual and regular course of business of the
corporation;
(2) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial
interest, an organization with which the corporation has a
business relationship, or an organization to which the
corporation has the power to make donations;
(3) is with, or for the benefit of, an officer or other employee
of the corporation or a subsidiary, including an officer or
employee who is a director of the corporation or a
subsidiary, and may reasonably be expected, in the judgment
of the board, to benefit the corporation; or
(4) has been approved by (a) the holders of two-thirds of the
voting power of the shares entitled to vote which are owned
by persons other than the interested person or persons, or
(b) the unanimous affirmative vote of the holders of all
outstanding shares whether or not entitled to vote.
Such loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors present approve, including, without limitation, a
pledge of or other security interest in shares of the corporation. Nothing in
this section shall be deemed to deny, limit or restrict the powers of guaranty,
surety or warranty of the corporation at common law or under a statute of the
state of Minnesota.
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ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01.The corporation shall indemnify all officers and directors
of the corporation, for such expenses and liabilities, in such manner, under
such circumstances and to such extent as permitted by Section 302A.521 of the
Minnesota Business Corporation Act, as now enacted or hereafter amended. The
Board of Directors may authorize the purchase and maintenance of insurance
and/or the execution of individual agreements for the purpose of such
indemnification, and the corporation shall advance all reasonable costs and
expenses (including attorneys' fees) incurred in defending any action, suit or
proceeding to all persons entitled to indemnification under this section 9.01,
all in the manner, under the circumstances and to the extent permitted by
Section 302A.521 of the Minnesota Business Corporation Act, as now enacted or
hereafter amended. Unless otherwise approved by the Board of Directors, the
corporation shall not indemnify any employee of the corporation who is not
otherwise entitled to indemnification pursuant to this section 9.01.
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ARTICLE X.
AMENDMENTS
Section 10.01.These bylaws may be amended or altered by a vote of
the majority of the whole board of directors at any meeting. Such authority of
the board of directors is subject to the power of the shareholders, exercisable
in the manner provided in the Minnesota Business Corporation Act, Section
302A.181, subd. 3, to adopt, amend, or repeal bylaws adopted, amended, or
repealed by the board of directors. After the adoption of the initial bylaws,
the board of directors shall not make or alter any bylaws fixing a quorum for
meetings of shareholders, prescribing procedures for removing directors or
filling vacancies in the board of directors, or fixing the number of directors
or their classifications, qualifications, or terms of office, except that the
board of directors may adopt or amend any bylaw to increase their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01.Voting Securities Held by the Corporation. Unless
otherwise ordered by the board of directors, the president shall have full
power and authority on behalf of the corporation (a) to attend any meeting of
security holders of other corporations in which the corporation may hold
securities and to vote such securities on behalf of this corporation; (b) to
execute any proxy for such meeting on behalf of the corporation; or (c) to
execute a written action in lieu of a meeting of such other corporation on
behalf of this corporation. At such meeting, the president shall possess and
may exercise any and all rights and powers incident to the ownership of such
securities that the corporation possesses. The board of directors may, from
time to time, grant such power and authority to one or more other persons and
may remove such power and authority from the president or any other person or
persons.
Section 11.02.Purchase and Sale of Securities. Unless otherwise
ordered by the board of directors, the president shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the corporation, and
may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The board of directors may, from time
to time, confer like powers upon any other person or persons.
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Exhibit 4.6
SPECIMEN SHARE CERTIFICATE
PLEASE SEE RESTRICTIVE LEGEND ON REVERSE SIDE HEREOF
NUMBER SHARES
Specimen [ARTWORK] Specimen
CUSIP NUMBER
SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS
ENSTAR INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES THAT Specimen IS THE OWNER AND
---------------------------------------------
REGISTERED HOLDER OF Specimen-------------------------------------- SHARES OF
---------------------------------------------------
Fully paid and nonassessable Common Stock, $.01 par value, of
ENStar, Inc.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS
CERTIFICATE TO BE SIGNED BY ITS DULY AUTHORIZED OFFICERS AND
TO BE SEALED WITH THE SEAL OF THE CORPORATION.
THIS DAY OF , 19 .
------------------ ------------------ ------
NO
CORPORATE ------------------------ ----------------------------
SEAL SECRETARY PRESIDENT
<PAGE> 2
A full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof of the corporation and the qualifications, limitations or
restrictions of such preferences and/or rights will be furnished by said
corporation to any stockholder upon request and without charge.
FOR VALUE RECEIVED ___________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
____________________________________________________________________
_____________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
____________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED______, 19_____
IN THE PRESENCE OF___________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERNATION OR ENGARGEMENT OR ANY CHANGE WHATEVER.
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<PAGE> 1
Exhibit 5
[Dorsey & Whitney LLP Letterhead]
ENStar Inc.
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
Re: ENStar Inc./Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to ENStar Inc., a Minnesota corporation,
(the "Company"), in connection with a Registration Statement on Form S-4 (the
"Registration Statement") relating to the distribution by the Company of up to
3,357,400 shares of common stock of the Company, par value $.01 per share (the
"Common Stock").
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering our opinions set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of all
documents submitted to us as copies. We have also assumed the legal capacity
for all purposes relevant hereto of all natural persons and, with respect to
all parties to agreements or instruments relevant hereto other than the
Company, that such parties had the requisite power and authority (corporate or
otherwise) to execute, deliver and perform such agreements or instruments, that
such agreements or instruments have been duly authorized by all requisite
action (corporate or otherwise), executed and delivered by such parties and
that such agreements or instruments are the valid, binding and enforceable
obligations of such parties. As to questions of fact material to our opinions,
we have relied upon certificates of officers of the Company and of public
officials. We have also assumed that the Common Stock will be issued and sold
as described in the Registration Statement.
Based on the foregoing, we are of the opinion that the shares of
Common Stock to be issued by the Company as described in the Registration
Statement have been duly authorized by all requisite corporate action and, upon
<PAGE> 2
issuance and delivery therefor as described in the Registration Statement, will
be validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: March 20, 1996
Very truly yours,
DORSEY & WHITNEY LLP
JAH
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<PAGE> 1
EXHIBIT 10.1
ENSTAR 1996 STOCK INCENTIVE PLAN
Section 1. Purpose.
The purpose of the Plan is to promote the interests of the Company
and its shareholders by aiding the Company in attracting and retaining key
management personnel capable of assuring the future success of, and
Non-Employee Directors capable of providing strategic direction to, the
Company, to offer such personnel and directors incentives to put forth maximum
efforts for the success of the Company's business, to afford such personnel and
directors an opportunity to acquire a proprietary interest in the Company and
to align further the interests of such personnel and directors with the
Company's shareholders.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest, in each
case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent
or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract
or other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors
of the Company designated by such Board to administer the Plan, which shall
consist of members appointed from time to time by the Board of Directors and
shall be comprised of not less than such number of directors as shall be
required to permit the Plan to satisfy the requirements of Rule 16b-3. Each
member of the Committee shall be a "disinterested person" within the meaning of
Rule 16b-3 and an "outside director" within the meaning of Section 162(m) of
the Code.
<PAGE> 2
(f) "Company" shall mean ENStar Inc., a Minnesota corporation,
and any successor corporation.
(g) "Dividend Equivalent" shall mean any right granted under
Section 6(e) of the Plan.
(h) "Eligible Person" shall mean any employee, officer,
consultant or independent contractor providing services to the Company or any
Affiliate who the Committee determines to be an Eligible Person. A
Non-Employee Director shall not be an Eligible Person.
(i) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(j) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as shall
be established from time to time by the Committee. Notwithstanding the
foregoing, unless otherwise determined by the Committee, the Fair Market Value
of Shares on a given date for purposes of the Plan shall be the last sale price
of the Shares as reported on the Nasdaq National Market on such date or, if
such Market is not open for trading on such date, on the day closest to such
date when such Market is open for trading.
(k) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision.
(l) "Non-Employee Director" shall mean a director who is not also
an employee of the Company or an Affiliate.
(m) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(n) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option, and shall include Reload Options.
(o) "Other Stock-Based Award" shall mean any right granted under
Section 6(f) of the Plan.
(p) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.
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<PAGE> 3
(q) "Performance Award" shall mean any right granted under
Section 6(d) of the Plan.
(r) "Person" shall mean any individual, corporation, partnership,
association or trust.
(s) "Plan" shall mean this ENStar 1996 Stock Incentive Plan, as
amended from time to time.
(t) "Reload Option" shall mean any Option granted under Section
6(a)(iv) of the Plan.
(u) "Restricted Stock" shall mean any Share granted under Section
6(c) of the Plan.
(v) "Restricted Stock Unit" shall mean any unit granted under
Section 6(c) of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
(w) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act or any successor rule
or regulation.
(x) "Shares" shall mean shares of Common Stock, $.01 par value,
of the Company or such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(y) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
Section 3. Administration.
(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee; provided, however, that Section 7 of the Plan
shall not be administered by the Committee but rather by the Board of Directors
subject to the provisions and restrictions of Section 7. Subject to the
express provisions of the Plan and to applicable law, and except with respect
to Section 7 of the Plan, the Committee shall have full power and authority to:
(i) designate Participants; (ii) determine the type or types of Awards to be
granted to each Participant under the Plan; (iii) determine the number of
Shares to be covered by (or with respect to which payments, rights or other
matters are to be calculated in connection with) each
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Award; (iv) determine the terms and conditions of any Award or Award Agreement;
(v) amend the terms and conditions of any Award or Award Agreement and
accelerate the exercisability of Options or the lapse of restrictions relating
to Restricted Stock, Restricted Stock Units or other Awards; (vi) determine
whether, to what extent and under what circumstances Awards may be exercised in
exchange for cash, Shares, promissory notes, other securities, other Awards or
other property, or canceled, forfeited or suspended; (vii) determine whether,
to what extent and under what circumstances cash, Shares, other securities,
other Awards, other property and other amounts payable with respect to an Award
under the Plan shall be deferred either automatically or at the election of the
holder thereof or the Committee; (viii) interpret and administer the Plan and
any instrument or agreement relating to, or Award made under, the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
(b) Delegation. The Committee may delegate its powers and duties
under the Plan to one or more officers of the Company or any Affiliate or a
committee of such officers, subject to such terms, conditions and limitations
as the Committee may establish in its sole discretion; provided, however, that
the Committee shall not delegate its powers and duties under the Plan (i) with
regard to officers or directors of the Company or any Affiliate who are subject
to Section 16 of the Exchange Act or (ii) in such a manner as would cause the
Plan not to comply with the requirements of Section 162(m) of the Code.
(c) Power and Authority of the Board of Directors.
Notwithstanding anything to the contrary contained herein, the Board of
Directors may, at any time and from time to time, without any further action of
the Committee, exercise the powers and duties of the Committee under the Plan
with regard to any Person who is not (i) an officer or director of the Company
or (ii) an Affiliate, in each case subject to Section 16 of the Exchange Act.
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in
Section 4(c), the aggregate number of Shares which may be issued under all
Awards
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under the Plan shall be 300,000. Shares to be issued under the Plan may be
either Shares reacquired and held in the treasury or authorized but unissued
Shares. If any Shares covered by an Award or to which an Award relates are not
purchased or are forfeited, or if an Award otherwise terminates without
delivery of any Shares, then the number of Shares counted against the aggregate
number of Shares available under the Plan with respect to such Award, to the
extent of any such forfeiture or termination, shall again be available for
granting Awards under the Plan. Notwithstanding the foregoing, the number of
Shares available for granting Incentive Stock Options under the Plan shall not
exceed 300,000, subject to adjustment as provided in the Plan and Section 422
or 424 of the Code or any successor provision.
(b) Accounting for Awards. For purposes of this Section 4, if an
Award entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted on
the date of grant of such Award against the aggregate number of Shares
available for granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine
that any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or other property) which
thereafter may be made the subject of Awards, (ii) the number and type of
Shares (or other securities or other property) subject to outstanding Awards
and (iii) the purchase or exercise price with respect to any Award; provided,
however, that the number of Shares covered by any Award or to which such Award
relates shall always be a whole number.
(d) Award Limitations Under the Plan. No Eligible Person may be
granted any Award or Awards under the Plan, the value of which Awards is based
solely on an increase in the value of the Shares after the date of grant of
such Awards, for more than 170,000 Shares in the aggregate in any calendar
year. The foregoing annual limitation specifically includes the grant of any
Awards representing "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code.
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Section 5. Eligibility.
Any Eligible Person, including any Eligible Person who is an officer
or director (but not a Non-Employee Director) of the Company or any Affiliate,
shall be eligible to be designated a Participant. In determining which
Eligible Persons shall receive an Award and the terms of any Award, the
Committee may take into account the nature of the services rendered by the
respective Eligible Persons, their present and potential contributions to the
success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full or part-time employees (which term as
used herein includes, without limitation, officers and directors who are also
employees), and an Incentive Stock Option shall not be granted to an employee
of an Affiliate unless such Affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision. Non-Employee Directors shall be eligible to receive Awards of
Non-Qualified Stock Options under the Plan only as provided in Section 7 of the
Plan.
Section 6. Awards.
(a) Options. The Committee is hereby authorized to grant Options
to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the
Plan as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable
under an Option shall be determined by the Committee; provided, however,
that such purchase price shall not be less than 100% of the Fair Market
Value of a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part and the method or methods by which, and the form or forms
(including, without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property, or any combination thereof,
having a Fair Market Value on the exercise date equal to the relevant
exercise price) in which, payment of the exercise price with respect
thereto may be made or deemed to have been made.
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(iv) Reload Options. The Committee may grant Reload Options,
separately or together with another Option, pursuant to which, subject
to the terms and conditions established by the Committee and any
applicable requirements of Rule 16b-3 or any other applicable law, the
Participant would be granted a new Option when the payment of the
exercise price of a previously granted option is made by the delivery of
Shares owned by the Participant pursuant to Section 6(a)(iii) hereof or
the relevant provisions of another plan of the Company, and/or when
Shares are tendered or forfeited as payment of the amount to be withheld
under applicable income tax laws in connection with the exercise of an
Option, which new Option would be an Option to purchase the number of
Shares not exceeding the sum of (A) the number of Shares so provided as
consideration upon the exercise of the previously granted option to
which such Reload Option relates and (B) the number of Shares, if any,
tendered or withheld as payment of the amount to be withheld under
applicable tax laws in connection with the exercise of the option to
which such Reload Option relates pursuant to the relevant provisions of
the plan or agreement relating to such option. Reload Options may be
granted with respect to Options previously granted under the Plan or any
other stock option plan of the Company, and may be granted in connection
with any Option granted under the Plan or any other stock option plan of
the Company at the time of such grant. Such Reload Options shall have a
per share exercise price equal to the Fair Market Value as of the date
of grant of the new Option. Any Reload Option shall be subject to
availability of sufficient Shares for grant under the Plan. Shares
surrendered as part or all of the exercise price of the Option to which
it relates that have been owned by the optionee less than six months
will not be counted for purposes of determining the number of Shares
that may be purchased pursuant to a Reload Option.
(b) Stock Appreciation Rights. The Committee is hereby
authorized to grant Stock Appreciation Rights to Participants subject to the
terms of the Plan and any applicable Award Agreement. A Stock Appreciation
Right granted under the Plan shall confer on the holder thereof a right to
receive upon exercise thereof the excess of (i) the Fair Market Value of one
Share on the date of exercise (or, if the Committee shall so determine, at any
time during a specified period before or after the date of exercise) over (ii)
the grant price of the Stock Appreciation Right as specified by the Committee,
which price shall not be less than 100% of the Fair Market Value of one Share
on the date of grant of the Stock Appreciation Right. Subject to the terms of
the Plan and any applicable Award Agreement, the grant price, term, methods of
exercise, dates of exercise, methods of settlement and any other terms and
conditions of any Stock Appreciation Right shall be as determined
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by the Committee. The Committee may impose such conditions or restrictions on
the exercise of any Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee
is hereby authorized to grant Awards of Restricted Stock and Restricted Stock
Units to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the
Plan as the Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted
Stock Units shall be subject to such restrictions as the Committee may
impose (including, without limitation, any limitation on the right to
vote a Share of Restricted Stock or the right to receive any dividend or
other right or property with respect thereto), which restrictions may
lapse separately or in combination at such time or times, in such
installments or otherwise as the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the
Plan shall be evidenced by issuance of a stock certificate or
certificates, which certificate or certificates shall be held by the
Company. Such certificate or certificates shall be registered in the
name of the Participant and shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Restricted
Stock. In the case of Restricted Stock Units, no Shares shall be issued
at the time such Awards are granted.
(iii)Forfeiture; Delivery of Shares. Except as otherwise
determined by the Committee, upon termination of employment (as
determined under criteria established by the Committee) during the
applicable restriction period, all Shares of Restricted Stock and all
Restricted Stock Units at such time subject to restriction shall be
forfeited and reacquired by the Company; provided, however, that the
Committee may, when it finds that a waiver would be in the best interest
of the Company, waive in whole or in part any or all remaining
restrictions with respect to Shares of Restricted Stock or Restricted
Stock Units. Any Share representing Restricted Stock that is no longer
subject to restrictions shall be delivered to the holder thereof
promptly after the applicable restrictions lapse or are waived. Upon
the lapse or waiver of restrictions and the restricted period relating
to Restricted Stock Units evidencing the right to receive Shares, such
Shares shall be issued and delivered to the holders of the Restricted
Stock Units.
(d) Performance Awards. The Committee is hereby authorized to
grant Performance Awards to Participants subject to the terms of the Plan and
any
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applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock and Restricted Stock Units), other securities, other Awards or
other property and (ii) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee shall establish. Subject to
the terms of the Plan and any applicable Award Agreement, the performance goals
to be achieved during any performance period, the length of any performance
period, the amount of any Performance Award granted, the amount of any payment
or transfer to be made pursuant to any Performance Award and any other terms
and conditions of any Performance Award shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to
grant Dividend Equivalents to Participants under which such Participants shall
be entitled to receive payments (in cash, Shares, other securities, other
Awards or other property as determined in the discretion of the Committee)
equivalent to the amount of cash dividends paid by the Company to holders of
Shares with respect to a number of Shares determined by the Committee. Subject
to the terms of the Plan and any applicable Award Agreement, such Dividend
Equivalents may have such terms and conditions as the Committee shall
determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized
to grant to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related
to, Shares (including, without limitation, securities convertible into Shares),
as are deemed by the Committee to be consistent with the purpose of the Plan;
provided, however, that such grants must comply with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other Awards or
other property or any combination thereof), as the Committee shall determine,
the value of which consideration, as established by the Committee, shall not be
less than 100% of the Fair Market Value of such Shares or other securities as
of the date such purchase right is granted.
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<PAGE> 10
(g) General. Except as otherwise specified with respect to
Awards to Non-Employee Directors pursuant to Section 7 of the Plan:
(i)No Cash Consideration for Awards. Awards shall be granted for
no cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in
the discretion of the Committee, be granted either alone or in addition
to, in tandem with or in substitution for any other Award or any award
granted under any plan of the Company or any Affiliate other than the
Plan. Awards granted in addition to or in tandem with other Awards or
in addition to or in tandem with awards granted under any such other
plan of the Company or any Affiliate may be granted either at the same
time as or at a different time from the grant of such other Awards or
awards.
(iii) Forms of Payment under Awards. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment
of an Award may be made in such form or forms as the Committee shall
determine (including, without limitation, cash, Shares, promissory
notes, other securities, other Awards or other property or any
combination thereof), and may be made in a single payment or transfer,
in installments or on a deferred basis, in each case in accordance with
rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred payments
or the grant or crediting of Dividend Equivalents with respect to
installment or deferred payments.
(iv) Limits on Transfer of Awards. No Award and no right under
any such Award shall be transferable by a Participant otherwise than by
will or by the laws of descent and distribution; provided, however,
that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary or
beneficiaries to exercise the rights of the Participant and receive any
property distributable with respect to any Award upon the death of the
Participant. Each Award or right under any Award shall be exercisable
during the Participant's lifetime only by the Participant or, if
permissible under applicable law, by the Participant's guardian or legal
representative. No Award or right under any such Award may be pledged,
alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.
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(v) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All certificates
for Shares or other securities delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations and other requirements of the
Securities and Exchange Commission and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. If the Shares or other securities are traded on a
securities exchange, the Company shall not be required to deliver any
Shares or other securities covered by an Award unless and until such
Shares or other securities have been admitted for trading on such
securities exchange.
Section 7. Options to Non-Employee Directors.
(a) Eligibility. If the Plan is approved by the shareholders of
the Company, Options shall be granted automatically under the plan to each
Non-Employee Director under the terms and conditions contained in this Section
7. The authority of the Committee under this Section 7 shall be limited to
ministerial and non-discretionary matters.
(b) Annual Option Grants. Each Non-Employee Director shall be
granted an Option to purchase 4,000 Shares upon his or her election or
appointment to the Board of Directors, and shall be granted an Option to
purchase 1,000 Shares on the date of the annual meeting of shareholders each
year, commencing with the 1997 Annual Meeting of Shareholders, if the
Non-Employee Director will remain in office immediately following such meeting.
The exercise price of each Option shall be equal to 100 percent of the Fair
Market Value per Share on the date of grant. Such Options shall be
Non-Qualified Stock Options, shall become exercisable six months after the date
of grant, and shall terminate on the fifth anniversary of the date of grant,
unless previously exercised or terminated. Such Options shall be subject to
the terms and conditions of Sections 6(a) and 10 of the Plan and to other
standard terms and conditions contained in the form of Non-Qualified Stock
Option Agreement used by the Company from time to time. Such Options shall
also terminate three months following the date upon which the participant
ceases to be a director of the Company, except that:
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(i) In the event that a Non-Employee Director who is granted an
Option shall cease to be a director of the Company by reason of such
director's willful and material misconduct, the Options shall terminate
as of the date of such misconduct, and
(ii) If a Non-Employee Director who is granted an Option shall die
while a director of the Company or within three months after he or she
ceases to be a director of the Company for any reason other than willful
and material misconduct, or if such director ceases to be a director of
the Company by reason of his or her disability and he or she shall not
have fully exercised the Option, the Option may be exercised at any time
within 12 months after such director's death, or 12 months after
cessation of directorship, in accordance with its terms by such
director's legal representatives or administrators or by any person or
persons to whom the Option has been transferred by will or the
applicable laws of descent and distribution, but only to the extent of
the full number of Shares such director was entitled to purchase under
the Option on the date of death or cessation of directorship.
(c) Exercise of Non-Employee Director Options. Non-Qualified
Stock Options granted to Non-Employee Directors may be exercised in whole or in
part from time to time by serving written notice of exercise on the Company at
its principal executive offices, to the attention of the Company's Secretary.
The notice shall state the number of Shares as to which the Option is being
exercised and be accompanied by payment of the purchase price. A Non-Employee
Director may, at such Director's election, pay the purchase price by check
payable to the Company, by promissory note, in Shares, or in any combination
thereof having a Fair Market Value on the exercise date equal to the applicable
exercise price. If payment or partial payment is made by promissory note, such
note shall be (i) full recourse, (ii) limited in principal amount to the
maximum amount permitted under applicable laws, rules and regulations, (iii)
bear interest at a rate not less than the minimum rate required to avoid the
imputation of income, original issue discount or a below-market-rate loan
pursuant to Sections 483, 1274 or 7872 of the Code or any successor provisions
thereto.
(d) Amendments to Section 7. The provisions of this Section 7
may not be amended more often than once every six months other than to comply
with changes in the Code or the rules and regulations promulgated under the
Code.
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Section 8. Amendment and Termination; Adjustments.
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the
Company may amend, alter, suspend, discontinue or terminate the Plan; provided,
however, that, notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the shareholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be made
that, absent such approval:
(i) would cause Rule 16b-3 to become unavailable with respect to
the Plan;
(ii) would violate the rules or regulations of the Nasdaq Stock
Market, the National Association of Securities Dealers, Inc. or any
securities exchange that are applicable to the Company; or
(iii) would cause the Company to be unable, under the Code, to
grant Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions
of or rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as
otherwise herein provided or in the Award Agreement.
(c) Correction of Defects, Omissions and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 9. Income Tax Withholding; Tax Bonuses.
(a) Withholding. In order to comply with all applicable federal
or state income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant
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are withheld or collected from such Participant. In order to assist a
Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions
relating to) an Award, the Committee, in its discretion and subject to such
additional terms and conditions as it may adopt, may permit the Participant to
satisfy such tax obligation by (i) electing to have the Company withhold a
portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value
equal to the amount of such taxes or (ii) delivering to the Company Shares
other than Shares issuable upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the date
that the amount of tax to be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have
the authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants (except to
Non-Employee Directors) to be paid upon their exercise or receipt of (or the
lapse of restrictions relating to) Awards in order to provide funds to pay all
or a portion of federal and state taxes due as a result of such exercise or
receipt (or the lapse of such restrictions). The Committee shall have full
authority in its discretion to determine the amount of any such tax bonus.
Section 10. General Provisions.
(a) No Rights to Awards. No Eligible Person, Participant or
other Person shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Awards under the Plan. The terms
and conditions of Awards need not be the same with respect to any Participant
or with respect to different Participants.
(b) Delegation. The Committee may delegate to one or more
officers of the Company or any Affiliate or a committee of such officers the
authority, subject to such terms and limitations as the Committee shall
determine, to grant Awards to Eligible Persons who are not (i) officers or
directors of the Company or (ii) Affiliates, in each case subject to Section 16
of the Exchange Act.
(c) Award Agreements. No Participant will have rights under an
Award granted to such Participant unless and until an Award Agreement shall
have been duly executed on behalf of the Company and, if requested by the
Company, signed by the Participant.
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(d) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(e) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant or Non-Employee Director the right to be
retained in the employ of the Company or any Affiliate, nor will it affect in
any way the right of the Company or an Affiliate to terminate such employment
at any time, with or without cause. In addition, the Company or an Affiliate
may at any time dismiss a Participant or Non-Employee Director from employment
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction and effect of the
Plan or any Award, and any rules and regulations relating to the Plan or any
Award, shall be determined in accordance with the laws of the State of
Minnesota.
(g) Severability. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee (or, in the case of grants under Section 7 of the
Plan, the Board of Directors), such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or
deemed amended without, in the determination of the Committee (or, in the case
of grants under Section 7 of the Plan, the Board of Directors), materially
altering the purpose or intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction or Award, and the remainder of the Plan or
any such Award shall remain in full force and effect.
(h) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.
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(j) Headings. Headings are given to the Sections and subsections
of the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(k) Other Benefits. No compensation or benefit awarded to or
realized by any Participant under the Plan shall be included for the purpose of
computing such Participant's compensation under any compensation-based
retirement, disability, or similar plan of the Company unless required by law
or otherwise provided by such other plan.
Section 11. Section 16(b) Compliance.
The Plan is intended to comply in all respects with Rule 16b-3 or
any successor provision, as in effect from time to time, and in all events the
Plan shall be construed in accordance with the requirements of Rule 16b-3. If
any Plan provision does not comply with Rule 16b-3 as hereafter amended or
interpreted, the provision shall be deemed inoperative. The Board of
Directors, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are (i) officers or directors of the Company or (ii)
Affiliates, in each case subject to Section 16 of the Exchange Act, without so
restricting, limiting or conditioning the Plan with respect to other
participants.
Section 12. Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the
Board of Directors of the Company; provided, however, that if the Company's
shareholders do not approve the Plan, the Plan shall be null and void and all
Awards granted pursuant to the Plan shall be of no force or effect.
Section 13. Term of the Plan.
Awards shall only be granted under the Plan during a 10-year period
beginning on the effective date of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond the end of such 10-year period, and the
authority of the Committee provided for hereunder with respect to the Plan and
any Awards, and the authority of the Board of Directors of the Company to amend
the Plan, shall extend beyond the termination of the Plan.
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<PAGE> 17
FORM OF
ENSTAR INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ____________________ day of
______________________________, 199___, by and between ENStar Inc., a Minnesota
corporation (the "Company") and ___________ ("Employee").
WITNESSETH, THAT:
WHEREAS, the Company pursuant to the ENStar 1996 Stock Incentive Plan
wishes to grant this stock option to Employee.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Contingent Grant of Option
The Company hereby grants to Employee, on the date set forth above,
the right and option (hereinafter called "the option") to purchase all or any
part of an aggregate of ___ shares of common stock, $.01 par value, of the
Company (the "Common Stock") at the price of $____ per share on the terms and
conditions set forth herein. This option is not intended to be an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. Duration and Exercisability
(a) This option shall in all events terminate ____ (__) years
after the date of grant. This option shall be exercisable by
Employee in cumulative installments as follows:
Cumulative percentage
On or after each of of shares as to which
the following dates option is exercisable
___________________ _____________________
___________________ _____________________
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<PAGE> 18
(b) Notwithstanding the installment exercise provision set forth
in paragraph (a) above and subject to the other terms and conditions set forth
herein, this option may be exercised as to 100% of the Common Stock of the
Company for which this option was granted on the date of a "change of control"
as hereinafter defined. A "change of control" shall mean any of the following:
(i)A sale of all or substantially all of the assets of the
Company.
(ii)The acquisition of more than 50% of the Common Stock of
the Company (with all classes or series thereof treated as a single
class) by any person (except a Permitted Shareholder as hereinafter
defined) or group of persons acting in concert. A "Permitted
Shareholder" means a holder, as of the date the Plan was adopted by
the Company, of more than 20% of the Company Common Stock then
outstanding.
(iii)A reorganization of the Company wherein the holders of
Common Stock of the Company receive stock in another company, a
merger of the Company with another company wherein there is a more
than 50% change in the ownership of the Common Stock of the Company
as a result of such merger, or any other transaction in which the
Company (other than as the parent corporation) is consolidated for
federal income tax purposes or is eligible to be consolidated for
federal income tax purposes with another corporation.
(iv)In the event that the Common Stock of the Company is
traded on an established securities market: a public announcement
that any person has acquired or has the right to acquire beneficial
ownership of more than 50% of the then outstanding Common Stock of
the Company (for this purpose the terms "person" and "beneficial
ownership" shall have the meanings provided in Section 13(d) of the
Securities and Exchange Act of 1934 or related rules promulgated by
the Securities and Exchange Commission) or the commencement of or
public announcement of an intention to make a tender offer or
exchange offer for more than 50% of the then outstanding Common
Stock of the Company.
(v)The Board of Directors of the Company, in its sole and
absolute discretion, determines that there has been a sufficient
change in the share ownership of the Company to constitute a change
of effective ownership or control of the Company.
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<PAGE> 19
(c) Notwithstanding the installment exercise provision set forth
in paragraph (a) above, this option will not be exercisable unless the
distribution of all of the outstanding common stock of the Company to the then
current shareholders of North Star Universal, Inc. takes place within one year
of the date of this Agreement.
(d) During the lifetime of Employee, the option shall be
exercisable only by Employee and shall not be assignable or transferable by
Employee, other than by will or the laws of descent and distribution.
3. Effect of Termination of Employment
(a) In the event that Employee shall cease to be employed by the
Company or its subsidiaries, if any, for any reason other than Employee's
serious misconduct or Employee's death or disability (as such term is defined
in Section 3(c) hereof), Employee shall have the right to exercise the option
at any time within one (1) month after such termination of employment to the
extent of the full number of shares Employee was entitled to purchase under the
option on the date of termination, subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(b) In the event that Employee shall cease to be employed by the
Company or its subsidiaries, if any, by reason of Employee's serious misconduct
during the course of employment, including but not limited to wrongful
appropriation of the Company's funds, or in the event that Employee violates
the covenants set forth in Section 5 hereof, the option shall be terminated as
of the date of the misconduct.
(c) If Employee shall die while in the employ of the Company or a
subsidiary, if any, or within one (1) month after termination of employment for
any reason other than serious misconduct or if employment is terminated because
Employee has become disabled (within the meaning of Code Section 22(e)(3))
while in the employ of the Company or a subsidiary, if any, and Employee shall
not have fully exercised the option, such option may be exercised at any time
within twelve (12) months after Employee's death or date of termination of
employment for disability by Employee, personal representatives or
administrators, or guardians of Employee, as applicable, or by any person or
persons to whom the option is transferred by will or the applicable laws of
descent and distribution, to the extent of the full number of shares Employee
was entitled to purchase under the option on the date of death, termination of
employment, if earlier, or date of termination for such disability and subject
to the condition that no option shall be exercisable after the expiration of
the term of the option.
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<PAGE> 20
4. Manner of Exercise
(a) The option can be exercised only by Employee or other proper
party by delivering within the option period written notice to the Company at
its principal office. The notice shall state the number of shares as to which
the option is being exercised and be accompanied by payment in full of the
option price for all shares designated in the notice.
(b) Employee may pay the option price in cash, by check (bank
check, certified check or personal check), by money order, or with the approval
of the Company (i) by delivering to the Company for cancellation Common Stock
of the Company with a fair market value as of the date of exercise equal to the
option price or the portion thereof being paid by tendering such shares, (ii)
by delivering to the Company the full option price in a combination of cash and
Employee's full recourse liability promissory note with a principal amount not
to exceed eighty percent (80%) of the option price and a term not to exceed
five (5) years, which promissory note shall provide for interest on the unpaid
balance thereof which at all times is not less than the minimum rate required
to avoid the imputation of income, original issue discount or a below-market
rate loan pursuant to Sections 483, 1274 or 7872 of the Code or any successor
provisions thereto or (iii) by delivering to the Company a combination of cash,
Employee's promissory note and Common Stock of the Company with an aggregate
fair market value and a principal amount equal to the option price. For these
purposes, the fair market value of the Common Stock as of any date shall be as
reasonably determined by the Company pursuant to the Plan.
5. Miscellaneous
(a) This option is issued pursuant to the ENStar 1996 Stock
Incentive Plan and is subject to its terms. The terms of the Plan are
available for inspection during business hours at the principal offices of the
Company.
(b) This Agreement shall not confer on Employee any right with
respect to continuance of employment by the Company or any of its subsidiaries,
nor will it interfere in any way with the right of the Company to terminate
such employment at any time. Employee shall have none of the rights of a
shareholder with respect to shares subject to this option until such shares
shall have been issued to Employee upon exercise of this option.
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<PAGE> 21
(c) The exercise of all or any parts of this option shall only be
effective at such time that the sale of Common Stock pursuant to such exercise
will not violate any state or federal securities or other laws.
(d) If there shall be any change in the Common Stock of the
Company through merger, consolidation, reorganization, recapitalization,
dividend in the form of stock (of whatever amount), stock split or other change
in the corporate structure of the Company, and all or any portion of the option
shall then be unexercised and not yet expired, then appropriate adjustments in
the outstanding option shall be made by the Company, in order to prevent
dilution or enlargement of option rights. Such adjustments shall include,
where appropriate, changes in the number of shares of Common Stock and the
price per share subject to the outstanding option.
(e) The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
(f) In order to provide the Company with the opportunity to claim
the benefit of any income tax deduction which may be available to it upon the
exercise of the option, and in order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to insure that, if necessary, all applicable federal or state
payroll, withholding, income or other taxes are withheld or collected from
Employee. Employee may elect to satisfy his federal and state income tax
withholding obligations upon exercise of this option by (i) having the Company
withhold a portion of the shares of Common Stock otherwise to be delivered upon
exercise of such option having a fair market value equal to the amount of
federal and state income tax required to be withheld upon such exercise, in
accordance with the rules of the Committee, or (ii) delivering to the Company
shares of Common Stock other than the shares issuable upon exercise of such
option with a fair market value equal to such taxes, in accordance with the
rules of the Committee.
(g) Employee agrees to disclose neither the contents nor any of
the terms and conditions of this option to any other person, and agrees that
such disclosure may result in both immediate termination of this option without
the right to exercise any part thereof and termination of employment with the
Company.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
ENSTAR INC.
By _________________________________________
Its _____________________________________
____________________________________________
Employee
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<PAGE> 1
EXHIBIT 10.11
CITY WEST BUSINESS CENTER
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 13th day of June, 1995, between Great West Life
Annuity & Insurance Company (hereinafter called "Landlord"), and Transition
Engineering, Inc., a Minnesota Corporation (hereinafter called "Tenant");
WITNESSETH, THAT
1. DEMISED PREMISES:
Landlord, subject to the terms and conditions hereof, hereby leases to Tenant
the premises (hereinafter referred to as the "Demised Premises") addressed as
6475 City West Parkway, Eden Prairie, Minnesota and designated on the floor
plan attached hereto as Exhibit A, comprising approximately 20,900 square feet
of area in the building situated at Eden Prairie, Minnesota (hereinafter
referred to as the "Building"), to be used by Tenant for general office, light
assembly, warehouse and engineering design use and related and incidental uses
and for no other purpose. The Building, the land underlying and contiguous
thereto, as described on Exhibit B attached hereto, and all improvements
thereon are hereinafter referred to as the "Project".
2. TERM:
Tenant takes the Demised Premises from Landlord, upon the terms and conditions
herein contained, to have and to hold the same for the term ("Lease Term") of
seven (7) years and one-half (1/2) month commencing on the 15th day of July,
1995, and ending on the 31st day of July, 2002, unless sooner terminated as
herein provided.
Tenant shall have the option to terminate this Lease ("Termination Option"),
with not less than 120 days prior written notice to Landlord, effective on the
last day of either the 36th or the 60th month of the Lease Term (July 31, 1998
and July 31, 2000, respectively). Tenant shall pay a fee ("Termination Fee")
equal to the unamortized cost of the Leasehold Improvements (excluding the
cost of space planning, architectural and mechanical drawings), unamortized
Brokerage Fees and three (3) months Base Rent and Operating Costs. Such
amortization shall be on a straight line basis, at 9_ % interest, over the
initial Lease Term of eighty four and one-half (84 1/2) months. Termination
Fee and all rent remaining to the effective date of cancellation shall be due
sixty (60) days prior to the effective date of cancellation.
Provided Tenant is not then in default of any provision of this Lease, Tenant
shall have the option to extend the Lease ("Extension Option") for one (1),
three (3) year term, upon 120 days prior written notice to Landlord on the same
terms and conditions, except as provided in Section 3. If this option is not
timely exercised, then it shall immediately there upon terminate.
3. BASE RENT:
Tenant shall pay to Landlord during the Lease Term a monthly base rent ("Base
Rent") of the following:
<PAGE> 2
July 15, 1995 through July 31, 1995: $0.00 per square foot, which
includes Operating Costs and
Utilities
August 1, 1995 through July 31, 1997: $6.25 per square foot; $10,885.41
per month
August 1, 1997 through July 31, 1999: $6.50 per square foot; $11,320.83
per month
August 1, 1999 through July 31, 2002: $6.75 per square foot; $11,756.25
per month
payable on the first day of each month in advance at the office of Landlord at
900 Second Avenue South, Suite 700, Minneapolis, Minnesota 55402, or at such
other place as may from time to time be designated by Landlord.
Base Rent during the Extension Option shall be at the then current Market Rent
rate, but not less than the Base Rent in effect during the last year of the
Lease Term.
The definition of current Market Rent shall take into account transactions in
comparable buildings in the Southwest Minneapolis Suburban corridor, having a
term equal to the extension option, including provision for all tenant or
landlord concessions, costs and allowances, such as (but without limitation)
tenant improvement allowance, free rent and leasing commissions.
In the event Landlord and Tenant are unable to agree to current Market Rent
within thirty (30) days of Tenant's exercise of its option, then the current
Market Rent shall be determined by arbitration. Landlord and Tenant, within
fifteen (15) days thereafter, shall jointly appoint as arbitrator, a commercial
real estate appraiser with a minimum of ten (10) years experience in the
applicable market. If Landlord and Tenant cannot agree on an acceptable
arbitrator, Landlord and Tenant shall choose, within an additional fifteen (15)
days thereafter, its own arbitrator who meets the qualifications described
above. The arbitrators shall then jointly select, within an additional fifteen
(15) days, an arbitrator to serve as the arbitrator hereunder. Within thirty
(30) days after appointment, the arbitrator shall determine the current Market
Rent. The cost of the arbitrator(s) shall be borne equally by Landlord and
Tenant.
4. OPERATING COSTS:
Tenant shall, for the entire Lease Term, except as provided in Section 3, pay
to Landlord as additional rent, without any set-off or deduction therefrom,
except as otherwise provided herein, 23.01 percent (23.01%) of all costs which
Landlord may incur during the term of this Lease in owning, maintaining, and
operating the Project. Said costs are referred to herein as "Operating Costs"
and are hereby defined to include, but shall not be limited to, all real estate
taxes and annual installments of special assessments payable with respect to
the Project, maintenance, repair, replacement and care of all heating,
lighting, plumbing and air conditioning fixtures, equipment and systems serving
the common areas, parking and landscape areas, signs, snow removal,
non-structural repair and maintenance of the exterior of the building,
insurance premiums, management fees (not to exceed four percent (4%) of gross
collections), wages and fringe benefits of personnel employed for such work,
and costs of equipment purchased and used for such purposes, exclusive of
depreciation, costs of tenant improvements and payments of principal and
interest on any mortgages covering the Project. Operating Costs shall also
include the yearly amortization of capital costs incurred by Landlord for
improvements or structural repairs to the Project required to comply with any
change in the laws, rules or regulations of any governmental authority having
jurisdiction, or for the purposes of reducing Operating Costs the extent of any
savings, which costs shall be amortized over the useful life of such
improvements or repairs, as reasonably estimated by Landlord.
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<PAGE> 3
The amortization of capital costs to reduce Operating Costs shall not exceed
the resulting reduction in Operating Costs.
Not withstanding anything in Section 4 to the contrary, the following shall not
be deemed Operating Costs under this Lease:
(A) Real estate brokerage commissions;
(B) Legal fees incurred in leasing or in disputes with tenants;
(C) Cost of construction allowances and similar lease inducement allowances
provided to other tenants;
(D) Interest or principal payments on any mortgage or deed of trust or any
ground lease payments;
(E) Any cost or expenditure for which Landlord is reimbursed from third
parties, such as insurance proceeds or warranty claims;
(F) Cost of any services furnished to other tenants but which Landlord does
not furnish to Tenant;
(G) Cost of repairs or maintenance caused or necessitated by the negligence
of Landlord, its agents, contractors or employees;
(H) Bad debt losses, rent losses and reserves for capital, rent losses and
bad debts;
(I) Subject to Tenant's obligations under Section 16, all costs of complying
with laws, regulations, ordinances or governmental requirements in
effect as of the date of this Lease relating to Hazardous Materials.
As soon as reasonably practicable prior to the commencement of each calendar
year during the Lease Term, Landlord shall furnish to Tenant an estimate of
Tenant's share of Operating Costs for the ensuing calendar year and Tenant
shall pay, as additional rent hereunder together with each installment of
monthly base rent, one-twelfth (1/12th) of its estimated annual share of such
Operating Costs. Landlord's estimate for 1995 is $3.40 per square foot. As
soon as reasonably practicable after the end of each calendar year during the
Lease Term, Landlord shall furnish to Tenant a reasonably detailed, itemized
statement of the actual Operating Costs for the previous calendar year,
including Tenant's share of such amount, and within thirty (30) days thereafter
Tenant shall pay to Landlord, or Landlord to Tenant, as the case may be, the
difference between such actual and estimated Operating Costs paid by Tenant.
Tenant's share of such Operating Costs for the years in which this Lease
commences and terminates shall be prorated based upon the dates of commencement
and termination of the Lease Term.
Landlord shall maintain all books and records relating to Operating Costs for a
particular year for a period of at least 120 days thereafter, and shall make
such books and records available to Tenant for inspection and copying at a
reasonably convenient location, upon 48 hours' advance notice. Tenant shall
have the right, at Tenant's sole expense, at any time within 120 days after
Tenant's receipt of Landlord's statement of actual Operating Costs for any
calendar year, to have Landlord's books and records relating to such Operating
Costs audited by a certified public accountant reasonably acceptable to Tenant
and Landlord. The results of any such audit shall be conclusive. If the audit
determines that actual Operating Costs for any calendar year are different than
the amount shown on Landlord's statement, Landlord shall refund or Tenant shall
pay the difference within 30 days after receiving the audit report. Tenant
shall have the further right to have Landlord's books and records for the prior
three years audited by a certified public accountant and reasonably acceptable
to Tenant and Landlord, but only as to those items which have been shown to be
incorrect. Landlord shall pay prior to delinquency all Operating Costs and all
payments due under any mortgage, deed of trust, ground lease or other
encumbrance against the Building or the Project. Landlord shall cause all
assessments for local improvements to be paid in installments over the maximum
allowable period of time.
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<PAGE> 4
5. ADDITIONAL TAXES:
Tenant shall pay as additional rent to Landlord, together with each installment
of monthly base rent, the amount of any gross receipts tax, sales tax or
similar tax (but excluding therefrom any income tax) payable, or which will be
payable, by Landlord, by reason of the receipt of the monthly base rent and
adjustments thereto.
6. SECURITY DEPOSIT: INTENTIONALLY DELETED
7. UTILITIES:
Landlord shall provide mains and conduits to supply water, gas, electricity and
sanitary sewage to the Demised Premises. Tenant shall pay, when due, all
charges for sewer usage or rental, garbage disposal, refuse removal, water,
electricity, gas, telephone and/or other utility services or energy source
furnished to the Demised Premises during the term of this Lease, or any renewal
or extension thereof, except as provided in Section 3.. If Landlord elects to
furnish any of the foregoing, the rate charged by Landlord for such utility
services or other services furnished or caused to be furnished by Landlord
shall not exceed the rate Tenant would be required to pay to a utility company
or service company furnishing any of the foregoing utilities or services. The
charges thereof shall be deemed additional rent.
8. CARE AND REPAIR OF DEMISED PREMISES:
Tenant shall, at all times throughout the term of this Lease, including
renewals and extensions, and at its sole expense, keep and maintain the Demised
Premises in a clean, safe, sanitary condition and in compliance with all
applicable laws, codes, ordinances, rules and regulations. Tenant's
obligations hereunder shall include but not be limited to the maintenance,
repair and replacement, if necessary, of all lighting, HVAC and plumbing
fixtures and equipment, fixtures, motors and machinery (but only if located in
the Demised Premises or exclusively serving the Demised Premises), all interior
walls, partitions, doors and windows, including the regular painting thereof,
all exterior entrances, windows, doors and docks and the replacement of all
broken glass. When used in this provision, the term "repairs" shall include
replacements or renewals when necessary, and all such repairs made by the
Tenant shall be equal in quality and class to the original work. The Tenant
shall keep and maintain all interior portions of the Demised Premises in a
clean and orderly condition.
Tenant shall not be obligated for maintenance, repair and replacement to the
extent coverable by insurance Landlord is obligated to maintain.
Landlord shall cause all HVAC and plumbing fixtures and equipment, fixtures,
motors and machinery to be in good operating condition as of the commencement
of this Lease. Subject to Tenant's obligations under Section 9.L. of this
Lease, Landlord warrants the good operation of all HVAC and plumbing fixtures
and of equipment, fixtures, motors and machinery for a period of one year from
the commencement of this Lease.
If Tenant fails, refuses or neglects to maintain or repair the Demised Premises
as required in this Lease after reasonable notice shall have been given Tenant,
Landlord may make such repairs without liability to Tenant for any loss or
damage that may accrue to Tenant's merchandise, fixtures or other property or
to Tenant's business by reason thereof, and upon completion thereof, Tenant
shall pay to Landlord all costs plus 15% for overhead incurred by Landlord in
making such repairs upon presentation
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<PAGE> 5
to Tenant of bill therefor. Landlord shall keep the foundation, exterior walls
(except plate glass or glass or other breakable materials used in structural
portions) and roof in good repair, and if necessary or required by proper
governmental authority, made modifications or replacements thereof, except that
Landlord shall not be required to make any such repairs, modifications or
replacements which are not coverable by insurance and which become necessary or
desirable by reason of the negligence of Tenant, its agents, servants or
employees.
The Landlord shall maintain, repair and manage in good condition all common
areas of the Project, including grounds and parking areas consistent with
prevailing standards for similar projects in the Minneapolis - St. Paul
metropolitan area. The cost of said maintenance shall be prorated in
accordance with Section 4 of this Lease. All such maintenance which is
provided by Landlord shall be provided as reasonably necessary for the
comfortable use and occupancy of the Demised Premises, upon the condition that
the Landlord shall not be liable for damages for failure to do so due to causes
beyond its control.
9. COVENANTS OF TENANT:
Tenant agrees that it shall:
A. Observe such reasonable and uniform rules and regulations as from time
to time may be put in effect by Landlord for the general safety, comfort
and convenience of Landlord, occupants and tenants of the Building.
B. Give Landlord access to the Demised Premises at all reasonable times,
upon reasonable prior notice, without change or diminution of rent, to
enable Landlord to examine the same and to make such repairs, additions
and alterations as Landlord may deem advisable, and during the ninety
(90) days prior to the expiration of the term, to exhibit the Demised
Premises to prospective tenants and to place upon the door or in the
windows of the Demised Premises any usual or ordinary "For Lease" signs.
Landlord shall not exercise its rights under this Section in any manner
which unreasonably interferes with or disturbs Tenant's use or enjoyment
of the Demised Premises.
C. Replace all glass broken by Tenant with glass of the same quality as
that broken, save only glass broken by fire or other casualty coverable
by standard all risk insurance, and commit no waste on the Demised
Premises.
D. Pay for all electric lamps, starters and ballasts used in the Demised
Premises.
E. Upon the termination of this Lease in any manner whatsoever, remove
Tenant's goods and effects and those of any other person claiming under
Tenant, and quit and deliver up the Demised Premises to Landlord
peaceably and quietly in as good order and condition as the same are now
in or hereafter may be put in by Landlord or Tenant, reasonable use and
wear thereof, casualty, condemnation and repairs which are Landlord's
obligation excepted. Goods and effects not removed by Tenant at the
termination of this Lease, however terminated, shall be considered
abandoned and Landlord may dispose of the same as it deems expedient.
F. Except for an assignment or subletting to an affiliate or a wholly owned
subsidiary of Tenant, the Tenant may not assign this Lease, or sublet
all or any part of said Demised Premises, without the Landlord's prior
written consent, which consent shall not be unreasonably withheld,
conditioned or delayed. The Landlord reserves the right, should the
Tenant request such assignment or subletting of the entire Demised
Premises, to release the Tenant from the terms and conditions of this
Lease and the Landlord shall have thirty (30) days to make such
determination. Should the Landlord exercise this right, the Lease shall
terminate. Until such termination, the Tenant will, however, remain
liable for the performance of all the terms and conditions hereof.
-5-
<PAGE> 6
G. Not place signs on or about the exterior of the Demised Premises without
first obtaining Landlord's written consent thereto.
H. Not overload, damage or deface the Demised Premises or do any act which
may make void or voidable any insurance on the Demised Premises or the
Building, or which may render an increased or extra premium payable for
insurance.
I. Not place any additional locks on any of Tenant's doors without the
written consent of the Landlord.
J. Not make any alterations or additions to the Demised Premises costing in
excess of $10,000.00 when aggregated over any period of twelve
consecutive months or which affect the safety or utility of the Demised
Premises without obtaining the prior written approval of the Landlord
thereto, and all alterations, additions or improvements (including
carpeting or other floor covering which has been glued or otherwise
affixed to the floor) which may be made by either of the parties hereto
upon the Demised Premises, except movable office furniture and
equipment, shall be the property of Landlord, and shall remain upon and
be surrendered with the Demised Premises, as a part thereof, at the
termination of this Lease.
K. Keep the Demised Premises and the Project free from any mechanics',
materialmen's, contractors' or other liens arising from, or any claims
for damages growing out of, any work performed, materials furnished or
obligations incurred by or on behalf of Tenant. Provided, however, that
Tenant shall have the right to contest any such lien, in which event
such lien shall not be considered a default under this Lease until the
existence of the lien has been finally adjudicated and all appeal
periods have expired. Tenant shall indemnify and hold harmless Lessor
from and against any such lien, or claim or action thereon, reimburse
Lessor promptly upon demand therefor by Lessor for costs of suit and
reasonable attorneys' fees incurred by Lessor in connection with any
such lien, claim or action, and, upon written request of Lessor, provide
Lessor with a bond in an amount and under circumstances necessary to
obtain a release of the Demised Premises or the Project from such lien.
L. Cause to be performed by a competent service company, preventative
maintenance of all HVAC units and warehouse unit heaters serving the
Demised Premises, as recommended by the equipment manufacturer.
Tenant's obligations under this paragraph numbered 9 to do or not to do a
specified act shall extend to and include Tenant's obligations to see to it
that Tenant's employees, agents and invitees shall do or shall not do such
acts, as the case may be.
10. PARKING AND DRIVES:
The Tenant, its employees, and invitees shall have the non-exclusive right,
without charge except as provided in Section 4, to use the common driveways and
parking lots along with the other tenants and customers of the building. The
use of such driveways and parking facilities are subject to such reasonable
rules and regulations as the Landlord may impose. The Tenant further agrees
not to use, or permit the use by its employees, the parking areas for the
overnight storage of automobiles or other vehicles without the written
permission of Landlord.
Landlord shall provide, on an as-is, non-exclusive basis (subject to Landlord's
repair and maintenance obligation) and without charge of any kind (other than
Operating Costs as provided in Section 4), a minimum of 3.8 parking stalls per
1,000 square feet of leasable area in the Building. Landlord shall designate
with appropriate signage five parking spaces for visitor parking. Landlord
shall not take any action to reduce the number of parking stalls located on the
land and serving the Building as of the date of this Lease.
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11. CASUALTY LOSS:
In case of damage to the Demised Premises or the Building by fire or other
casualty, Tenant shall give immediate notice to Landlord, who shall thereupon
cause the damage to be repaired with reasonable speed, at the expense of the
Landlord, subject to delays which may arise by reason of adjustment of loss
under insurance policies and for delays beyond the reasonable control of
Landlord, and to the extent that the Demised Premises are rendered
untenantable, the rent shall proportionately abate. In the event the damage
shall be so extensive that the cost of repair would exceed thirty percent (30%)
of the value of the Building, and Landlord shall decide not to repair or
rebuild, this Lease shall, at the option of Landlord, be terminated as of the
date of such damage by written notice from the Landlord to the Tenant given
within 60 days of such damage, and the rent shall be adjusted to the date of
such damage and Tenant shall thereupon promptly vacate the Demised Premises.
If Landlord fails to complete the repair and restoration of the Building and
Demised Premises within 180 days after the date of any such damage or
destruction, then Tenant may terminate this Lease by giving written notice
thereof to Landlord at any time after such 180 day period and prior to
completion of such repairs and restoration.
12. CONDEMNATION:
If the entire Demised Premises is taken by eminent domain or transferred under
threat of such taking, this Lease shall automatically terminate as of the date
of taking. If a portion of the Demised Premises are taken by eminent domain,
either party shall have the right to terminate this Lease as of the date of
taking by giving written notice thereof to the other within ninety (90) days
after such date of taking. If neither party elects to terminate this Lease,
Landlord shall, at its expense, restore the Demised Premises, exclusive of any
improvements or other changes made therein by Tenant, to as near the condition
which existed immediately prior to the date of taking as reasonably possible,
and to the extent that the Demised Premises are rendered untenantable, the rent
shall proportionately abate. All damages awarded for a taking under the power
of eminent domain shall belong to and be the exclusive property of Landlord,
whether such damages be awarded as compensation for diminution in value of the
leasehold estate hereby created or to the fee of the Demised Premises;
provided, however, that Landlord shall not be entitled to any separate award
made to Tenant for relocation expenses and the value and cost of removal of its
personal property and fixtures.
13. DELAY IN POSSESSION:
If the Demised Premises shall, on the scheduled date of commencement of the
Lease Term, not be ready for occupancy by the Tenant due to the possession or
occupancy thereof by any person not lawfully entitled thereto, or because
construction has not yet been completed, or by reason of any building
operations, repair or remodeling to be done by Landlord, Landlord shall use due
diligence to complete such construction, building operations, repair or
remodeling and to deliver possession of the Demised Premises to Tenant. except
as hereinafter provided, the Landlord, using such due diligence, shall not in
any way be liable for failure to obtain possession of the Demised Premises for
Tenant or to timely complete such construction, building operations, repair or
remodeling, but the rental and other charges payable by Tenant hereunder shall
be abated until the Demised Premises shall, on Landlord's part, be ready for
occupancy by Tenant, and the commencement and expiration dates and all other
dates herein shall be extended by the period of delay, this Lease remaining in
all other respects in full force and effect.
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<PAGE> 8
If construction of the Leasehold Improvements to be completed by Landlord shall
not have commenced by June 14, 1995, Tenant may terminate this Lease by
telephone message to Landlord or Landlord's agent, delivered no later than 5:00
PM, June 14, 1995.
14. MUTUAL RELEASE/WAIVER OF SUBROGATION:
Landlord and Tenant each hereby release the other from any and all liability or
responsibility for any direct or consequential loss, injury or damage to the
Demised Premises, or its contents, caused by fire or any other casualty, during
the term of this Lease, even if such fire or casualty may have been caused by
the negligence (but not the willful act) of the other party or one for whom
such party may be responsible. Inasmuch as the above mutual waivers will
preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each party hereto
agrees if required by said policies to give to each insurance company which has
issued to it all risk and other property insurance, written notice of the terms
of said mutual waivers, and to have said insurance policies properly endorsed,
if necessary, to prevent the invalidation of said insurance coverage by reason
of said waivers.
Tenant shall not carry any stock of goods or do anything in or about said
Demised Premises which will increase standard insurance rates on said Demised
Premises or the Building in which the same are located. If Landlord shall
consent to such use, Tenant agrees to pay as additional rental any increase in
premiums for all risk insurance resulting from the business carried on in the
Demised Premises by Tenant. Tenant shall, at its own expense, comply with the
requirements of insurance underwriters and insurance rating bureaus and
governmental authorities having jurisdiction.
The Tenant shall maintain in full force and effect during the term hereof, a
policy of commercial general liability insurance under which Landlord is named
additional insured. The minimum limits of liability of such insurance shall be
$2,000,000.00 combined single limit as to bodily injury and property damage.
Tenant agrees to deliver a duplicate copy of said policy, or a certificate of
insurance evidencing such coverage, to Landlord. Such policy shall contain a
provision requiring thirty (30) days written notice to Landlord before
cancellation of the policy can be effected.
Landlord shall maintain, at all times during the Lease Term and any extension
thereof, (i) an "all risk" or equivalent form property insurance policy,
insuring the Building and the Leasehold Improvements for their full replacement
cost, without deduction for depreciation, and with a deductible amount not to
exceed $25,000; (ii) boiler and machinery insurance in an amount equal to the
full replacement cost of the Building and Leasehold Improvements, with a
deductible amount not to exceed $25,000.00.
Upon the request of the Tenant, Landlord shall provide evidence of insurance.
15. INDEMNIFICATION AND HOLD HARMLESS:
Tenant does hereby agree to defend, indemnify and hold Landlord harmless from
and against any and all liability for any injury to or death of any person or
persons or any damage to property in any way arising out of or in connection
with the condition, use or occupancy of the Premises, or in any way arising out
of any activities in or about the Premises, of Tenant, its assignees or
subtenants or of the respective agents, employees, licensees, contractors or
invitees of Tenant or its assignees or subtenants, and from all costs, expenses
and liabilities (including, but not limited to, court costs and reasonable
attorney's fees) incurred by Landlord in connection therewith.
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<PAGE> 9
Tenant covenants and agrees that Landlord shall not be liable to Tenant for any
injury to or death of any person or persons or for damage to any property of
Tenant, or any person claiming through Tenant, arising out of any accident or
occurrence in or about the Premises, including, but not limited to, injury,
death or damage caused by the Premises being out of repair or caused by any
defect in or failure of equipment, pipes or wiring, or caused by broken glass,
or caused by the backing up of drains, or caused by gas, water, steam,
electricity, or oil leaking, escaping or flowing into the Premises, or caused
by fire or smoke.
Tenant agrees to report in writing to Landlord any defective condition in or
about the Premises known to Tenant, and further agrees to attempt to contact
Landlord by telephone immediately in such instance.
16. HAZARDOUS SUBSTANCES:
Tenant covenants and agrees that Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of any biologically
or chemically active or other hazardous substances or materials in violation of
applicable laws. Tenant shall not allow the storage or use of such substances
or materials in any manner not sanctioned by law or by the standards prevailing
in the industry for the storage and use of such substances or materials, nor
allow to be brought into the Project any such materials or substances except to
use in the ordinary course of Tenant's business, and then only after written
notice is given to Landlord of the identity of such substances or materials.
Without limitation, hazardous substances and materials shall include those
described in the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et. seq., and
applicable state or local laws and the regulations adopted under these acts.
If any lender or governmental agency shall ever require testing to ascertain
whether or not there has been any release of hazardous materials, and such
testing determines that Tenant has caused the release, then the reasonable
costs thereof shall be reimbursed by Tenant to Landlord upon demand as
additional charges if such requirement applies to the Demised Premises. In
addition, Tenant shall execute affidavits, representations and the like from
time to time at Landlord's request concerning Tenant's best knowledge and
belief regarding Tenant's use of hazardous substances or materials on the
Demised Premises. In all events, Tenant shall indemnify Landlord as referenced
in Section 15, from all actual investigation and remediation costs reasonably
incurred by Landlord as a result of any release of hazardous materials caused
by Tenant on the Demised Premises or elsewhere if caused by Tenant or persons
acting under Tenant in violation of this Lease or applicable law. The within
covenants shall survive the expiration or earlier termination of the Lease
term.
Tenant has received a copy of the Phase I Environmental Survey Site Assessment
prepared by W.W. Engineering and Science dated April 15, 1994.
To the best of Landlord's knowledge, there are no other environmental issues
relating to the Property.
17. DEFAULT:
Tenant hereby agrees that in case Tenant shall default in making its payments
hereunder or any of them or in performing any of the other agreements, terms
and conditions of this Lease, then, in any such event, Landlord, in addition to
all other rights and remedies available to Landlord by law or by other
provisions hereof, may after ten days written notice (with respect to monetary
defaults) and 30 days written notice (with respect to all other defaults), with
due process, re-enter immediately into the Demised Premises and remove all
persons and property therefrom, and, at Landlord's option, annul and
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<PAGE> 10
cancel this Lease as to all future rights of Tenant and Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter as
aforesaid. If a nonmonetary default occurs which cannot reasonably be cured
within 30 days after notice from Landlord, then Landlord shall not exercise any
of its remedies as a result of such default for a period of 90 days after such
non-monetary default as long as Tenant has commenced and is diligently pursuing
reasonable efforts to cure such default. Tenant further agrees that in case of
any such termination Tenant will indemnify the Landlord against all loss of
rents and other damage which Landlord incurs by reason of such termination,
including, but not being limited to, costs of restoring and repairing the
Demised Premises and putting the same in rentable condition, costs of renting
the Demised Premises to another tenant, loss of diminution of rents and other
damage which Landlord may incur by reason of such termination, and all
reasonable attorney's fees and expenses incurred in enforcing any of the terms
of the Lease. Neither acceptance of rent by Landlord, with or without
knowledge of breach, nor failure of Landlord to take action on account of any
breach hereof or to enforce its rights hereunder shall be deemed a waiver of
any breach, and absent written notice or consent, said breach shall be a
continuing one.
18. NOTICES:
All bills, statements, notices of communications which Landlord may desire or
be required to give to Tenant shall be deemed sufficiently given or rendered if
in writing and sent by registered or certified mail addressed to Tenant at the
Demised Premises and the time of rendition thereof of the giving of such notice
or communication shall be deemed to be the time when the same is delivered to
Tenant or deposited in the mail as herein provided. Any notice by Tenant to
Landlord must be served by registered or certified mail addressed to Landlord
at the address where the last previous rental hereunder was payable, or in case
of subsequent change upon notice given, to the latest address furnished and the
time of rendition thereof of the giving of such notice or communication shall
be deemed to be the time when the same is delivered to Tenant or deposited in
the mail as herein provided.
19. HOLDING OVER:
Should Tenant continue to occupy the Demised Premises after expiration of the
Lease Term or any renewal or renewals thereof, or after a forfeiture incurred,
such tenancy shall be from month to month and in no event from year to year or
for any longer term. Landlord shall charge Tenant a holdover rent equal to
150% of Base Rent and Operating Costs last in effect hereunder.
20. SUBORDINATION:
Subject to the non-disturbance rights set forth below, the rights of Tenant
shall be and are subject and subordinate at all times to the lien of any first
mortgage now or hereafter in force against the project, and Tenant shall
execute such further instruments subordinating this Lease to the lien of any
such first mortgage as shall be requested by Landlord, provided, however, the
holder of such first mortgage shall agree not to disturb Tenant's rights under
this Lease so long as Tenant is not in default hereunder.
Landlord shall obtain and deliver to Tenant, within 30 days after the date of
this Lease, a written agreement, in form and substance reasonably acceptable to
Tenant, from each mortgagee, ground lessor, beneficiary of a deed of trust, or
other party holding a lien on any part of the Project (collectively, the
"Holder"), in which the Holder agrees to recognize Tenant's rights under this
Lease and not to disturb Tenant's possession of the Demised Premises in the
event of any foreclosure or termination of Landlord's interest in the Demised
Premises or the Project.
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<PAGE> 11
21. ESTOPPEL CERTIFICATE:
Tenant shall at any time and from time to time, upon not less than ten (10)
days prior written notice from Landlord, execute, acknowledge and deliver to
Landlord and any other parties designated by Landlord, a statement in writing
certifying (a) that this Lease is in full force and effect and is unmodified
(or, if modified, stating the nature of such modification), (b) the date to
which the rental and other charges payable hereunder have been paid in advance,
if any, and (c) that there are, to Tenant's knowledge, no uncured defaults on
the part of Landlord hereunder (or specifying such defaults if any are
claimed). Any such statement may be furnished to and relied upon by any
prospective purchaser, Tenant or encumbrancer of all or any portion of the
Project.
22. SERVICE CHARGE:
Tenant agrees to pay a service charge equal to one percent (1%) per month or
any portion thereof of any payment of monthly base rent or additional charge
payable by Tenant hereunder which is not paid within ten (10) days from the
date due, or of $50.00 per month or portion thereof, whichever is greater.
23. BINDING EFFECT:
The word "Tenant", wherever used in this Lease, shall be construed to mean
tenants in all cases where there is more than one tenant, and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships or individuals, men or women, shall in all cases be
assumed as though in each case fully expressed. Each provision hereof shall
extend to and shall, as the case may require, bind and inure to the benefit of
Landlord and Tenant and their respective heirs, legal representatives,
successors and assigns, provided that this Lease shall not inure to the benefit
of any heir, legal representative, transferee or successor of Tenant except
upon the express written consent or election of Landlord. The Landlord may
assign its right, title, and interest in this Lease, and such assignment shall
thence terminate all the assigning Landlord's obligations thereafter arising,
provided the assignee assumes such obligation in writing.
24. LEASEHOLD IMPROVEMENT COSTS:
Landlord shall provide all space planning, construction, mechanical and
engineering drawings at its sole cost and expense.
Landlord will complete, at its expense, on or before July 15, 1995, all of the
improvements ("Leasehold Improvements") to the Demised Premises in accordance
with the plans and specifications identified in Exhibit _____ attached hereto
(the "Plans").
Changes to the Plans as requested by Tenant from time to time shall be
performed by Landlord, provided that any such changes shall be subject to
Landlord's prior approval, which approval shall not be withheld except where
the changes (i) violate any applicable laws or require an amendment or variance
to the applicable zoning ordinance or a special permit, (ii) in Landlord's
reasonable judgment, materially and adversely effect the exterior appearance of
the Buildings or the exterior appearance of other areas of the Demised
Premises, or (iii) would result in a violation of the provisions of this Lease,
(iv) or would result in a delay in the Commencement of the Term. Landlord
shall, before proceeding with any change, submit to Tenant in writing within
five (5) business days after Tenant notifies Landlord of the change or request
therefor, an estimate of the additional cost, if any, of the change and
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<PAGE> 12
the additional period of time, if any, the change will add to the scheduled
date for completion of the Leasehold Improvements. If Tenant fails to approve
such statement within five (5) business days following receipt thereof, the
same shall be deemed disapproved and Landlord shall not proceed with the
change. If Tenant approves said statement within said period, Landlord shall
cause the approved change to be made. Landlord shall promptly proceed with the
change as soon as reasonably practical after Tenant's written (i) approval of
the foregoing statement by Landlord and (ii) agreement to pay the net
additional costs of such change as estimated by Landlord, determined on the
basis of actual out-of-pocket costs for labor and materials, plus contractor's
and subcontractor's fees not to exceed a total of six percent (6%) of labor and
materials costs, after deducting any savings resulting from such change or any
prior changes approved by Tenant. Any such amount shall be paid in cash within
30 days after the later of (i) Tenant's receipt of Landlord's itemized invoice
showing a breakdown of such additional cost and including such backup
documentation as may be reasonably requested by Tenant, or (ii) completion of
the Leasehold Improvements.
Upon substantial completion of the Leasehold Improvements, Landlord, Tenant and
Landlord's architect shall execute a written instrument (the "Punch List")
identifying those minor details of construction, decoration and mechanical
adjustments remaining to be completed by Landlord which do not materially
interfere with Tenant's use and occupation of the Demised Premises ("Punch List
Items"). Full execution and delivery of the Punch List shall constitute
Tenant's acceptance of the Demised Premises; provided, however, that such
acceptance shall be subject to the completion of such Punch List Items within a
period of sixty (60) days after the commencement date. In addition to the
foregoing Punch List Items, Tenant shall have the right to include as a part of
said Punch List Items any other uncompleted items (the "Additional Punch List
Items") which Tenant discovers while occupying the Demised Premises during the
aforesaid sixty (60) day period, which Additional Punch List Items shall be
completed or corrected by Landlord as soon as reasonably possible. Tenant's
acceptance of the Demised Premises shall not relieve Landlord of liability for
any defect or deficiency therein.
If within one year after the Commencement of this Lease any of the work is
found to be defective due to faulty workmanship or materials, and if within
such period Tenant notifies Landlord thereof in writing, then Landlord shall
correct the same at its expense within a reasonable time after receipt of such
notice. Tenant shall notify Landlord promptly after discovery of the
condition.
25. BROKERAGE FEES:
Landlord shall pay a brokerage fee ("Brokerage Fees") of $3.00 per square foot
to The Shelard Group. The Shelard Group and Northco Real Estate shall divide
this fee under the terms of a separate agreement. The Landlord and Tenant each
warrant that there are no other claims for Broker's Commissions or finder fees
in connection with this Lease by any party with whom it has dealt. Tenant and
Landlord hereby indemnifies and mutually holds each other harmless from and
against all loss, cost, damage or expense including, but not limited to,
attorney's fees and court costs incurred as a result of a claim made by a real
estate broker or agent through the Tenant or Landlord, respectively.
26. SIGNAGE:
Upon the City of Eden Prairie's approval, Tenant shall have the option to
install signage on the Building. Said signage shall be in accordance with all
applicable sign criteria for the Building, and subject to Landlord's consent,
which shall not be unreasonably withheld.
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<PAGE> 13
27. AMERICANS WITH DISABILITIES ACT:
The parties agree that the liabilities and obligations of Landlord and Tenant
under that certain federal statute commonly known as the Americans With
Disabilities Act (42 U.S.C. 12101 et seq.) as well as the regulations and
accessibility guidelines promulgated thereunder as each of the foregoing is
supplemented or amended from time to time (collectively, the "ADA") shall be
apportioned as follows:
A. Landlord represents and warrants to Tenant that all common areas of the
Building and the Project, including, but not limited to, exterior and
interior horizontal and vertical routes of ingress and egress,
off-street parking, and all rules and regulations applicable to the
Demised Premises, the Building or the Project, now comply, or shall be
promptly made to comply by Landlord, at Landlord's sole cost and
expense, with the ADA. Landlord shall also cause its manager of the
Building and the Project (the "Manager") to comply with the ADA in its
operation of the Building and the Project. Notwithstanding any
provision of this Lease to the contrary, Landlord shall not be permitted
to pass through to Tenant, as an Operating Cost or otherwise, any cost
incurred by Landlord or the Manager in causing the Building or the
Project to comply with the ADA, as presently published, as aforesaid.
B. From and after the commencement date of the Lease, and subject to
performance by Landlord of its obligations under subparagraph A
immediately above, Tenant covenants and agrees to conduct its operations
within the Demised Premises in compliance with the ADA. In the event
that Tenant elects to undertake any alterations to, for or within the
Demised Premises, including initial build-out work if such work,
pursuant to other terms of this Lease, is the responsibility of Tenant
to perform, then Tenant agrees to cause such alterations to be performed
in compliance with the ADA. In the event that Tenant shall be required
to make any alterations within the Demised Premises in order to make the
Demised Premises comply with the ADA and such required alterations are
not required because of Landlord's failure to perform its obligations
under subparagraph A immediately above, then, to the extent any other
term of this Lease requires the Tenant to obtain the Landlord's consent
to make such alterations, Landlord hereby agrees to provide such consent
to Tenant.
28. QUIET ENJOYMENT:
Landlord hereby covenants that if Tenant pays the rent and other charges and
performs the covenants and agreements contained herein, Tenant shall peaceably
and quietly hold and enjoy the Demised Premises during the Lease Term and
extensions thereof.
29. LANDLORD'S WARRANTIES:
Landlord warrants to Tenant that (i) the Demised Premises are zoned to permit
the use thereof for the purposes contemplated by this Lease without requiring a
variance or special or conditional use permit, and such use will not violate
any applicable Private Restrictions, and (ii) Landlord has good and marketable
fee simple absolute title to the Project, free from any liens and encumbrances
which would interfere with Tenant's use and enjoyment of the Demised Premises
and common areas for the purposes provided in this Lease.
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<PAGE> 14
30. NO RECORDATION OF LEASE:
Without the prior written consent of Landlord, neither this Lease nor any
memorandum thereof shall be recorded or placed on public record.
IN WITNESS WHEREOF, the respective parties hereto have caused this Lease to be
executed the day and year first above written.
LANDLORD:
GREAT WEST LIFE ANNUITY & INSURANCE COMPANY
/s/
TENANT:
TRANSITION ENGINEERING, INC.
/s/
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<PAGE> 1
EXHIBIT 10.12
7450 FLYING CLOUD DRIVE
EDEN PRAIRIE, MN
LEASE AGREEMENT
This Lease Agreement, made this 21st day of February, 1989, between
RYAN/FLYING CLOUD ASSOCIATES LIMITED PARTNERSHIP (hereinafter called "Lessor"),
and AMERICABLE, INCORPORATED a Minnesota Corporation (hereinafter called
"Tenant");
WITNESSETH, THAT
1. Demised Premises. Lessor, subject to the terms and conditions
hereof, hereby leases to Tenant the premises (hereinafter referred to as the
"Demised Premises") addressed as 7450 Flying Cloud Drive, Eden Prairie,
Minnesota (Lot 2, Block 1, Wilson Ridge addition, according to the plat thereof
and situated in Hennepin County, Minnesota and shown crosshatched in red on the
floor plan attached hereto as Exhibit A, comprising approximately/1 34,418
square feet of area in the building situated at Eden Prairie, Minnesota
(hereinafter referred to as the "Building"), to be used by Tenant for
Manufacturing sales and distribution of computer cable and for no other use or
purpose. The Building, the land underlying and contiguous thereto and all
improvements thereon are hereinafter referred to as the "Project". "Landlord's
architect shall measure the demised premises after the Lease Term has commenced
and shall provide a certificate of such measurement to Lessor and Tenant which
shall be used to adjust, if necessary Base Rent and Tenant's pro rata share of
operating costs.
2. Term. Tenant takes the Demised Premises from Lessor, upon the terms
and conditions herein contained, to have and to hold the same one & one-half (1
1/2) months commencing on the 15th day of May, 1989, and ending on the last day
of June 1995, unless sooner terminated as herein provided.
Refer also to Rider, Paragraph 1.
3. Base Rent. Tenant shall pay to Lessor during the Lease Term a
monthly base rent of See Rider, Paragraph 2. Dollars ($see rider), payable on
the first day of each month in advance at the office of Lessor at 900 2nd Ave.
S., Ste. 700, Mpls., Minnesota 55402, or at such other place as may from time
to time be designated by Lessor.
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1/ See Rider, paragraph 3 for further agreements regarding operating costs.
<PAGE> 2
4. Operating Costs. Tenant shall, for the entire Lease Term, pay to
Lessor as additional rent, without any set-off or deduction therefrom, a pro
rata share of all costs which Lessor may incur in owning, maintaining, and
operating the Project. Said costs are referred to herein as "Operating Costs"
and are hereby defined to installments of special assessments payable with
respect to the Project, maintenance, repair, replacement and care of all
heating, lighting, plumbing and air conditioning fixtures, equipment and
systems serving the common areas, parking and landscape areas, signs, snow
removal, non-structural repair and maintenance of the exterior of the building,
insurance premiums, management fees, wages and fringe benefits of personnel
employed for such work, and costs of equipment purchased and used for such
purposes, exclusive of depreciation, costs of tenant improvements and payments
of principal and interest on any mortgages covering the Project. Operating
Costs shall also include the yearly amortization of capital costs incurred by
Lessor for improvements or structural repairs to the Project required to comply
with any change in the law, rules or regulations of any governmental authority
having jurisdiction, (in which case Tenant's liability and pro rata share shall
be limited to $3,500.00 per calendar year); or for purposes of reducing
Operating Costs, which costs shall be amortized over the useful life of such
improvements or repairs, as reasonably estimated by Lessor, and which in the
case of capital costs for improvements for the purpose of reducing operating
costs, shall not exceed the actual amount of operating cost reduction.
As soon as reasonably practicable prior to the commencement of each
calendar year during the Lease Terms, Lessor shall furnish to Tenant an
estimate of Tenant's share of Operating Costs, if any, for the ensuing calendar
year and Tenant shall pay, as additional rent hereunder together with each
installment of monthly base rent, one-twelfth (1/12th) of its estimated annual
share of such Operating Costs. As soon as reasonably practicable after the end
of each calendar year during the Lease Term, Lessor shall furnish to Tenant a
certified statement of the actual Operating Costs for the previous calendar
year, including Tenant's share of such amount, and within thirty (30) days
thereafter Tenant shall pay to Lessor, or Lessor to Tenant as the case may be,
the difference between such actual and estimated Operating Costs paid by
Tenant. Tenant's share of such excess Operating Costs for the years in which
this Lease commences and terminates shall be prorated based upon the dates of
commencement and termination of the Lease Term. Also see Rider, paragraph 3.
5. Additional Taxes. Tenant shall pay as additional rent to Lessor,
together with each installment of monthly base rent, the amount of any gross
receipts tax, sales tax or similar tax (but excluding therefrom any income tax)
payable, or which will be payable, by Lessor, by reason of the receipt of the
monthly base rent and adjustments thereto.
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<PAGE> 3
7. Utilities. Lessor shall provide mains and conduits to supply water,
gas, electricity and sanitary sewage to the Demised Premises. Tenant shall
pay, when due, all charges for sewer usage or rental, garbage disposal, refuse
removal, water, electricity, gas, telephone and/or other utility services or
energy source furnished to the Demised Premises during the term of this Lease,
or any renewal or extension thereof. If Lessor elects to furnish any of the
foregoing utility services or other services furnished or caused to be
furnished by Lessor shall not exceed the rate Tenant would be required to pay
to a utility company or service company furnishing any of the foregoing
utilities or services. The charges thereof shall be deemed additional rent in
accordance with Section 4.
8. Care and Repair of Demised Premises. Tenant shall, at all times
throughout the terms of this Lease, including renewals and extensions, and at
its sole expense, keep and maintain the Demised Premises in a clean, safe,
sanitary and first class condition and in compliance with all applicable laws,
codes, ordinances, rules and regulations. Tenant's obligations hereunder shall
include but not be limited to the maintenance, repair and replacement if
necessary, of all lighting and plumbing fixtures and equipment, fixtures,
motors and machinery, all interior walls, partitions, doors and windows,
including the regular painting thereof, all exterior entrances, windows, doors
and docks and the replacement of all broken glass. When used in this
provision, the term "repairs" shall include replacements or renewals when
necessary, and all such repairs made by the Tenant shall be equal in quality
and class to the original work. The Tenant shall keep and maintain all
portions of the Demised Premises and the sidewalk and areas adjoining the same
in a clean and orderly condition, free of accumulation of dirt, rubbish, snow
and ice. *Refer to Rider, paragraph 13.
If Tenant fails, refuses or neglects to maintain or repair the Demised
Premises as required in this Lease after notice shall have been given Tenant,
Lessor may make such repairs without liability to Tenant for any loss or damage
that may accrue to Tenant's merchandise, fixtures or other property or to
Tenant's business by reason thereof, and upon completion thereof, Tenant shall
pay to Lessor all costs plus 15% for overhead incurred by Lessor in making such
repairs upon presentation to Tenant of invoices therefor provided said repairs
are reasonably visible to Lessor, and unless repairs are of an urgent or
emergency nature, Lessor shall provide Tenant with written notice of Tenant's
failure to make repairs, and Tenant shall have 30 days to cure the deficiency.
Lessor shall keep the foundation, exterior walls (except plate glass or glass
or other breakable materials used in structural portion) and roof in good
repair, and if necessary or required by proper governmental authority, make
modifications or replacements thereof, except that Lessor shall not be required
to make any such repairs, modifications or replacements which become necessary
or desirable by reason of the negligence of Tenant, its agents, servants or
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employees, or by reason of anyone illegally entering or upon the premises,
repairs, modifications or replacements are covered and collectible under the
insurance policies required to be maintained by LESSOR under the terms and
conditions of this Lease, unless the cost of said repairs, modifications or
replacements are covered and collectible under the insurance policies required
to be maintained by LESSOR under the terms and conditions of this Lease.
The Lessor shall manage all outside maintenance of the Demised Premises,
including grounds and parking areas. The cost of said maintenance shall be
prorated in accordance with Section 4 of this Lease. All such maintenance
which is provided by Lessor shall be provided as reasonably necessary for the
comfortable use and occupancy of Demised Premises during business hours, except
Saturdays, Sundays, and holidays, upon the condition that the Lessor shall not
be liable for damages for failure to do so due to causes beyond its control.
9. Covenants of Tenant. Tenant agrees that it shall:
A. Observe such rules and regulations as from time to time may
be put in effect by Lessor for the general safety, comfort
and convenience of Lessor, occupants and tenants of said
Building, and which rules and regulations shall be consistent
with the terms and conditions of the Lease and uniformly
enforced.
B. Give Lessor access to the Demised Premises at all reasonable
times, without change or diminution of rent, to enable Lessor
to examine the same and to make such repairs, additions and
alterations as Lessor may deem advisable, and during the
ninety (90) days prior to the expiration of the term, to
exhibit the Premises to prospective tenants and to place upon
the door or in the windows of the Demised Premises any usual
or ordinary "For Lease" signs. Lessor will use reasonable
efforts to provide Tenant with 24 hours notice before
entering the space.
C. Keep the Demised Premises in good order and condition and
replace all glass broken by Tenant with glass of the same
quality as that broken, save only glass broken by fire and
extended coverage risks, and commit no waste on the Demised
Premised.
D. Pay for all electric lamps, starters and ballasts used in the
Demised Premises.
E. Upon the termination of this Lease in any manner whatsoever,
remove Tenant's goods and effects and those of any other
person
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claiming under Tenant, and quit and deliver up the DEmised
Premises to Lessor peaceably and quietly in as good order
and condition as the same are now in or hereafter may be
put in by Lessor or Tenant, reasonably use and wear
thereof and repairs which are Lessor's obligation excepted.
Goods and effects not removed by Tenant at the termination of
this Lease, however, terminated, shall be considered
abandoned and Lessor may dispose of the same as it deems
expedient.
F. Except for an assignment or subletting to an affiliate or a
wholly owned subsidiary of Tenant or the parent corporation,
the Tenant may not assign this Lease, or sublet all or any
part of said Demised Premises, without the Lessor's prior
written consent, which consent shall not be unreasonably
withheld. The Lessor reserves the right, should the Tenant
request such assignment or subletting, to release the Tenant
from the terms and provisions of this Lease and the Lessor
shall have thirty (30) days to make such determination.
Should the Lessor exercise this right, the Lease shall
terminate. Until termination hereof, the Tenant will,
however, still remain liable for the performance of all the
terms and conditions hereof.
G. Not place signs on or about the Demised Premises without
first obtaining Lessor's written consent thereto.
H. Not overload, damage or deface the Demised Premises or do any
act which may make void or voidable any insurance on the
Demised Premises or the building, or which may render an
increased or extra premium payable for insurance.
I. Not place any additional locks on any of Tenant's doors
without the written consent of the Lessor. The Lessor shall
have the right to keep pass keys to the Demised Premises.
J. Not make any alterations or additions to the Demised Premises
without obtaining the prior written approval of the Lessor
thereto, except cosmetic or decorative changes, which shall
not require Lessor's consent provided that the changes are
consistent or of better quality than existing improvements,
and all alterations, additions or improvements (including
carpeting or other floor covering which has been glued or
otherwise affixed to the floor) which may be made by either
of the parties hereto
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upon the Demised Premises, except movable office furniture
and equipment shall be the property of Lessor, and shall
remain upon and be surrendered with the Demised Premises, as
a part thereof, at the termination of this Lease.
K. Cause to be performed by a competent service company,
preventative maintenance of all roof top HVAC units and
warehouse unit heaters serving the Demised Premises, as
recommended by the equipment manufacturer.
Tenant's obligations under this paragraph numbered 9 to do or not to do
a specified act shall extend to and include Tenant's obligations to see to it
that Tenant's employees, agents and invitees shall do or shall not do such
acts, as the case may be.
10. Parking and Drives. The Tenant, its employees, and invitees
shall have the non-exclusive right to use the common driveways and parking lots
along with the other tenants and customers of the building. The use of such
driveways and parking facilities are subject to such reasonable rules and
regulations as the Lessor may impose. The Tenant further agrees not to use, or
permit the use by its employees, the parking areas for the overnight storage of
automobiles or other vehicles without the written permission of Lessor.
11. Casualty Loss. In case of damage to the Demised Premises or
the Building by fire or other casualty, Tenant shall give immediate notice to
Lessor, who shall thereupon cause the damage to be repaired with reasonable
speed, at the expense of the Lessor, subject to delays which may arise by
reason of adjustment of loss under insurance policies and for delays beyond the
reasonable control of Lessor, and to the extent that the Demised Premises are
rendered untenantable, the rent shall proportionately abate. Lessor shall
commence repair and restoration promptly and with due diligence. If the
premises cannot be restored in 180 days, force majeure excepted, Tenant may
terminate the lease by providing Lessor with 30 days written notice. In the
event the damage shall be so extensive that the Lessor shall decide not to
repair or rebuild, this Lease shall, at the option of Lessor, be terminated as
of the date of such damage by written notice from the Lessor to the Tenant, and
the rent shall be adjusted to the date of such damage and Tenant shall
thereupon promptly vacate the Demised Premises. In the event the damage shall
be so extensive such that more than fifty percent (50%) of the Building has
been destroyed, this Lease shall, at the option of either Lessor or Tenant, be
terminated as of the date of such damage by written notice from either party to
the other, and the rent shall be adjusted to the date of such damage and Tenant
shall thereupon promptly vacate
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the Demised Premises. Lessor agrees to insure the building at replacement cost
and such policy shall contain a waiver of subrogation against Tenant.
12. Condemnation. If the entire Demised Premises are taken by
eminent domain, this Lease shall automatically terminate as of the date of
taking. If a portion of the Demised Premises are taken by eminent domain,
Lessor shall have the right to terminate this Lease as of the date of taking by
giving written notice thereof to Tenant within ninety (90) days after such date
of taking. If Lessor does not elect to terminate this Lease, it shall, at its
expense, restore the Demised Premises, exclusive of any improvements or other
changes made therein by Tenant, to as near the condition which existed
immediately prior to the date of taking as reasonably possible, and to the
extent that the Demised Premises are rendered untenantable, the rent shall
proportionately abate. All damages awarded for a taking under the power of
eminent domain shall belong to and be the exclusive property of Lessor, whether
such damages be awarded as compensation for diminution in value of the
leasehold estate hereby created or to the fee of the Demised Premises;
provided, however, that Lessor shall not be entitled to any separate award made
to Tenant for the value and cost of removal of its personal property and
fixtures.
13. Delay in Possession. If the Demised Premises shall on the
scheduled date of commencement of the Lease Term not be ready for occupancy by
the Tenant due to the possession or occupancy thereof by any person not
lawfully entitled thereto, or because construction has not yet been completed,
or by reason of any building operations, repair or remodeling to be done by
Lessor, Lessor shall use due diligence to complete such construction, building
operations, repair or remodeling and to deliver possession of the Demised
Premises to Tenant. The Lessor, using such due diligence, shall not in any way
be liable for failure to obtain possession of the Demised Premises for Tenant
or to timely complete such construction, building operations, repair or
remodeling, but the rental and other charges payable by Tenant hereunder shall
be abated until the Demised Premises shall, on Lessor's part, be ready for the
occupancy of Tenant, this Lease remaining in all other respects in full force
and effect and the Lease Term not thereby extended. Refer also to the Rider,
paragraph 1.
14. Mutual Release/Waiver of Subrogation. Lessor and Tenant each
hereby release the other from any and all liability or responsibility for any
direct or consequential loss, injury or damage to the Demised Premises, or its
contents, caused by fire or any other casualty, during the term of this Lease,
even if such fire or any other casualty, during the term of this Lease, even if
such fire or other casualty may have been caused by the negligence (but not the
willful act) of the other party or one for whom such party may be responsible.
Inasmuch as the above mutual waivers will preclude the assignment of any
aforesaid claim by way of
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subrogation (or otherwise) to an insurance company (or any other person), each
party hereto agrees if required by said policies to give to each insurance
company which has issued to it fire and other property insurance, written
notice of the terms of said mutual waivers, and to have said insurance policies
properly endorsed, if necessary, to prevent the invalidation of said insurance
coverage by reason of said waivers.
Tenant shall not carry any stock of goods or do anything in or about
said Leased Premises which will increase insurance rates on said Leased
Premises or the Building in which the same are located. If Lessor shall
consent to such use, Tenant agrees to pay as additional rental any increase in
premiums for insurance against loss by fire or extended coverage risks
resulting from the business carried on in the Leased Premises by Tenant.
Tenant shall, at its own expense, comply with the requirements of insurance
underwriters and insurance rating bureaus and governmental authorities having
jurisdiction.
The Tenant shall maintain in full force and effect during the term
hereof, a policy of public liability insurance under which Lessor and Tenant
are named insured. The minimum limits of liability of such insurance shall be
$1,000,000.00 combined single limit as to bodily injury and property damage.
Tenant agrees to deliver a duplicate copy of said policy, or a certificate of
insurance evidencing such coverage, to Lessor. Such policy shall contain a
provision requiring ten (10) days written notice to Lessor before cancellation
of the policy can be effected.
15. Default. Tenant hereby agrees that in case Tenant shall
default in making its payments hereunder or any of them or in performing any of
the other agreements, terms and conditions of this Lease, then, in any such
event, Lessor, in addition to all other rights and remedies available to Lessor
by law or by other provisions hereof, may after ten days written notice, with
due process, re-enter immediately into the Demised Premises and remove all
persons and property therefrom, and, at Lessor's option, annul and cancel this
Lease as to all future rights of Tenant and Tenant hereby expressly waives the
service of any notice in writing of intention to re-enter as aforesaid. Tenant
further agrees that in case of any such termination Tenant will indemnify the
Lessor against all loss of rents and other damage which Lessor incurs by reason
of such termination, including, but not being limited to, costs of restoring
and repairing the Demised Premises and putting the same in rentable condition,
costs of renting the Demised Premises to another tenant, loss or diminution of
rents and other damage which Lessor may incur by reason of such termination,
and all reasonable attorney's fees and expenses incurred in enforcing any of
the terms of the Lease. Neither acceptance of rent by Lessor, with or without
knowledge of breach, nor failure of Lessor to take action on account of any
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breach hereof or to enforce its right hereunder shall be deemed a waiver of any
breach, and absent written notice or consent, said breach shall be a continuing
one.
Refer also to Rider, paragraph 8
16. Notices. All bills, statements, notices of communications
which Lessor may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and either delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
Demised Premises and the time of rendition thereof of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant or deposited in the mail as herein provided. Any notice by Tenant to
Lessor must be served by registered or certified mail addressed to Lessor at
the address where the last previous rental hereunder was payable, or in case of
subsequent change upon notice given, to the latest address furnished.
17. Holding Over. Should Tenant continue to occupy the Demised
Premises after expiration of the Lease term or any renewal or renewals thereof,
or after a forfeiture incurred, such tenancy shall be from month to month and
in no event from year to year or for any longer term.
18. Subordination. The rights of Tenant shall be and are subject
and subordinate at all times to the lien of any first mortgage now or hereafter
in force against the project, provided such Mortgagee agrees not to disturb
Tenant's possession if Tenant attorns to such Mortgagee, and Tenant shall
execute such further instruments subordinating this Lease to the lien of any
such first mortgage as shall be required by Lessor.
Refer also to Rider, Paragraph 14
19. Estoppel Certificate. Tenant shall at any time and from time
to time, upon not less than ten (10) days' prior written notice from Lessor,
execute, acknowledge and deliver to Lessor and any other parties designated by
Lessor, a statement in writing certifying (a) that this Lease is in full force
and effect and is unmodified (or, if modified, stating the nature of such
modifications), (b) the date to which the rental and other charges payable
hereunder have been paid in advance, if any, and (c) that there are, to
Tenant's knowledge, no uncured defaults on the part of Lessor hereunder (or
specifying such defaults if any are claimed). Any such statement may be
furnished to and relied upon by an prospective purchaser, tenant or
encumbrancer of all or any portion of the Project.
20. Service Charge. Tenant agrees to pay a service charge equal
to one percent (1.0%) per month or any portion thereof of any payment of
monthly base
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rent or additional charge payable by Tenant hereunder which is not paid within
fifteen (15) days from the date due, or of $25.00 per month or portion thereof,
whichever is greater.
21. Binding Effect. The word "Tenant", wherever used in this
Lease, shall be construed to mean tenants in all cases where there is more than
one tenant, and the necessary grammatical changes required to make the
provisions hereof apply to corporations, partnerships or individuals, men or
women, shall in all cases by assumed as though in each case fully expressed.
Each provision hereof shall extend to and shall, as the case may require, bind
and inure to the benefit of Lessor and Tenant and their respective heirs, legal
representatives, successors and assigns, provided that this Lease shall not
inure to the benefit of any heir, legal representative, transferee or successor
of Tenant except upon the express written consent or election of Lessor. The
Lessor may assign its right, title, and interest in this Lease, and such
assignment shall thence terminate all the Lessor's obligations.
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<PAGE> 11
IN WITNESS WHEREOF, the respective parties hereto have cause this Lease
to be executed the day and year first above written.
LESSOR: RYAN/FLYING CLOUD ASSOCIATES
LIMITED PARTNERSHIP
By: Ryan Properties, Inc., its General Partner
Its: Vice President
TENANT: AMERICABLE, Incorporated, a
Minnesota Corporation
By: /s/
-------------------------------------------
Its: President
------------------------------------------
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RIDER TO LEASE AGREEMENT
THIS RIDER to Lease Agreement is a Rider attached to and forming a part
of that certain Lease Agreement dated February 21st, 1989, by and between
RYAN/FLYING CLOUD ASSOCIATES LIMITED PARTNERSHIP, as Lessor ("LESSOR"), and
AMERICABLE INCORPORATED, a Minnesota Corporation, as Tenant ("TENANT"), as the
same shall modify, amend, supplement or alter the terms and provisions of said
Lease Agreement and by these presents shall be incorporated therein by
reference and form a part thereof for all purposes.
In consideration of the premises, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereto further mutually agree as follows:
1. Commencement Date
Provided that the Lease is executed by February 21, 1989, and plans are
approved by Tenant by February 24, Lessor shall use its best efforts to
complete construction and to deliver the premises by the commencement
date of May 15, 1989. The lease shall not start before May 15, 1989.
In event that delivery of the premises is delayed beyond May 15, 1989
but not beyond June 29, 1989, (force majeure excepted) there will be no
penalty to Lessor.
In the event that occupancy is delayed, the day a Certificate of
Occupancy is received shall be the lease commencement date. From the
lease commencement date, the lease shall continue through the 73rd month
following said date, and terminate on the last day of the 73rd month.
The rent schedule shall start on the commencement date and Tenant shall
receive no less than five full months of base rent abatement.
Provided the Lease is executed by February 21, 1989, and plans are
approved by Tenant by February 24, and if construction is not completed
and a Certificate of Occupancy not received by June 29, 1989, (force
majeure excepted) there will be a penalty to Lessor. For each one day
the commencement date is delayed beyond June 29, 1989, Tenant shall
receive a credit equivalent to 1.5 times the combined rent and operating
costs for each day of delay. For each working day that lease execution
or plan approval by Tenant is delayed beyond February 21, 1989 and
February 24, 1989, respectively, the penalty start date shall be moved
back one working day.
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2. Net Rental Rate and Monthly Base Rent
The net rental rate and monthly base rent shall be established as
follows:
A. Months 1-5
* Net rental rate - $0.00 per square foot
* Monthly base rent - abated
B. Months 6-18
* Net rental rate - $3.50 per square foot
* Monthly base rent - $10,039.00
C. Months 19-60
* Net rental rate - $4.58 per square foot
* Monthly base rent - $13,136.00
D. Months 61-73 1/2
* Net rental rate - $5.65 per square foot
* Monthly base rent - $16,205.00
E. Monthly base rents are subject to change based on final measurement
of square footage.
3. Operating Costs
Operating costs for the first eighteen (18) months of the lease term
shall be fixed at $2.50 per square foot. Thereafter, the operating
costs shall be determined in accordance with the terms and conditions
set forth in paragraph 4 of the Lease Agreement.
For the purpose of this Lease, Tenant's "prorata share" of Operating
Costs shall be that percentage obtained by dividing the rentable area of
the Demised Premises (initially estimated to be 34,818 square feet) by
the total rentable area of the Building (estimated to be 77,076 square
feet), which calculation, if such measurements do not change, will
result in a prorata share of forty-five percent (45%).
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Operating costs shall specifically exclude:
A. Leasing commissions, attorneys' fees, costs and other expenses
incurred in connection with the negotiations or disputes with
tenants, other occupants or prospective tenants of the building or
due to any breach or violation by Landlord or any tenant of any
lease;
B. costs incurred in renovating or otherwise improving, decorating or
redecorating for tenants or other occupants in the building;
C. repairs or other work occasioned by fire, windstorm or other
casualty, the costs of which are reimbursed to Landlord by insurers
(or would have been reimbursed assuming that Lessor is carrying the
insurance coverage required by the lease) or by governmental
authorities in eminent domain proceedings;
D. costs of correcting defects in the design or construction of the
building including latent defects;
E. costs which under generally accepted accounting principles,
consistently applied are capitalized; except as delineated in
paragraph 4 of the lease and in this paragraph of the Rider.
F. costs of Landlord's general corporate overhead and general
administrative expenses;
G. costs incurred in advertising or other marketing or promotional
activities designed primarily to market space in the building;
H. penalties or interest charged for failure to pay real estate taxes
before they become delinquent or failure to promptly comply with
laws related to the building.
The fee charged by Lessor for management of the building shall not
exceed 4% of gross rents.
Provided Tenant has paid in full all rent and additional rent billed to
date, Tenant shall have a period of up to ninety (90) days after receipt
of Landlord's certified statement of expenses in which to challenge any
item, request invoices or other backup or to elect to perform an audit.
If the audit shows an overstatement by five percent (5%) or more, the
cost of the audit should be paid for by Landlord, otherwise, the cost
should be paid Tenant. In any event,
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any difference in costs revealed by the audit should be promptly
adjusted between Landlord and Tenant.
Regarding amortization of capital costs as permitted under the terms and
conditions of this Lease, such costs shall be amortized over the useful
life of the applicable improvements or repairs as reasonably estimated
by Lessor and, if requested by Tenant, as confirmed by an independent
engineer or similar professional, whose fees shall be paid for by
Tenant.
4. Interior Tenant Improvements
Lessor, at its expense, agrees to construct the space in accordance with
the plans and specifications drawn by Walsh Bishop Associates dated
December 20, 1988 and revised January 25, 1989 (attached here as Exhibit
A), and in accordance with the specification outline attached here as
Exhibit B. Lessor also agrees to pay all reasonable space planning
charges incurred through the services of Walsh Bishop through January
24, 1989. The total cost for the above described improvements plus
space planning charges is estimated at $242,177. It is mutually agreed
that Lessor and Tenant will use their best efforts to reduce this cost
to $230,000.
Any subsequent changes to the plans and specifications at Tenant's which
result in total interior construction and space planning costs exceeding
the estimate $242,177, shall be at Tenant's expense.
Ryan Construction Company of Minnesota shall act as the general
contractor. Tenant shall have the right to suggest appropriate union
subcontractors when the plans let out to bid. Lessor at its sole
discretion reserves the right to select subcontractors based on bid
price, references and proven subcontractor reliability.
Lessor shall obtain from the general contractor, for the benefit of
Tenant, a one (1) year warranty against defects in construction of the
improvements to the Demised Premises, including specifically, any
defects in materials and workmanship.
In addition, Tenant shall deliver to Lessor at the time of occupancy any
punch-list items which will be promptly completed by Lessor or Lessor's
contractor. Lessor shall also be responsible for any latent defects in
construction.
5. Exterior Tenant Improvements
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Lessor, at its expense, agrees to construct all modifications to the
exterior structure of the building as shown on the plans drawn by Walsh
Bishop Associates and dated January 24, 1989, and attached here as
Exhibit A. Lessor shall use its best efforts to complete exterior
improvements simultaneously with interior improvements and subject to
the same deadline and penalty provisions outlined in paragraph 1 of this
Rider.
6. Landlord's Consent
In all cases where Landlord's consent is required, such consent shall
not be unreasonably withheld.
7. Parking
A. Lessor agrees to add 20 parking stalls (thereby increasing the total
number of parking stalls to 159) by summer of 1989 as weather
permits. Failure to complete the addition of these parking stalls
is not to be deemed a condition that shall delay the commencement
date of the Lease. Lessor hereby advises Tenant that Lessor is
endeavoring to add stalls up to a total of 162 stalls, subject to
City approval of plans and specifications already submitted to the
City of Eden Prairie.
B. Lessor shall provide Tenant with six reserved parking stalls in the
front of the building. Tenant recognizes that Lessor cannot
effectively enforce the proper use of these stalls.
8. Default by Tenant
Tenant shall have the following grace periods, from receipt of written
notice by Lessor, in which to cure the default:
A. Non-payment of rent, additional rent, or other sums which may be due
pursuant to the terms of the lease: 15 days.
B. Other defaults: 30 days, unless the nature of the default is such
that it cannot be reasonably cured within 30 days, in which case
Tenant will not be deemed in default as long as Tenant promptly
commences to cure the default and diligently proceeds to complete
the cure.
9. Option to Renew
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Tenant shall have two (2) options to renew the Lease Term for successive
three (3) year periods. Each option shall be exercised, if at all, by
Tenant providing Lessor with at least six (6) months written notice
thereof. Base Rent shall be adjusted on first day of each three (3)
year option period to the then-prevailing market rate for lease
transactions of comparable size and type and for similar properties in
the same general geographic area, giving due regard to concessions then
being offered to tenants, such as free rent and improvement allowances.
However, in no event shall the base rent including said concessions and
allowances be less than $5.65 net (on an effective basis after
subtracting concessions and allowances) per square foot per year.
10. Memorandum of Lease
Lessor agrees to deliver to Tenant within 30 days following lease
execution a Memorandum of Lease in a form acceptable to Lessor which
Tenant may place of record in the office of the Hennepin County
Recorder.
11. Utilities
Lessor warrants that electric and gas service to the Demised Premises
are submetered and that Tenant's share of electric and gas utilities
service shall be determined based on monthly readings of these meters,
which readings shall be conducted by Lessor and/or Tenant.
Lessor warrants that water and sewer service to the Demised Premises is
not separately metered and Tenant shall pay its pro rata share of water
and sewer expense. The definition of "pro rata share" has been
delineated in the Rider, paragraph 3.
12. Guaranty of Lease
This Lease is contingent upon the execution of the Guaranty of Lease
(attached herein as Exhibit C) by North Star Universal, Inc., a
Minnesota Corporation.
13. Limitation of Tenant's Obligations to Replace Rooftop Heating and
Cooling Equipment:
If the rooftop heating and cooling equipment cannot be repaired and must
be replaced in its entirety, Lessor shall be responsible for replacement
of said equipment. In consideration of this responsibility, Lessor
shall have the right
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<PAGE> 18
to routinely inspect and properly maintain said equipment, and Tenant
shall promptly pay when due all charges for said inspections,
maintenance and repairs.
Upon termination of the initial lease term, and in the event Tenant
exercises its option to renew, Lessor at its sole discretion shall
determine whether or not the rooftop heating and cooling equipment and
unit(s) are to be replaced. If Lessor so decides, Lessor shall replace
the heating and cooling equipment and unit(s) and Tenant agrees to pay
30% of the cost of said new equipment and unit(s). Tenant's cost shall
be amortized over the balance of the remaining lease term, payable in
equal monthly installments, at an interest rate of prime plus 1% per
annum.
14. Subordination - Further Agreements
Lessor agrees to obtain a subordination and non-disturbance agreement
from existing mortgage holders. Lessor shall use its best efforts to
obtain said agreements within thirty (30) days following lease
execution. Lesser agrees to provide title evidence showing the names of
the mortgage holders.
IN WITNESS WHEREOF, Lessor and Tenant respectively have executed this
Rider to Lease Agreement this 23rd day of February, 1989.
TENANT: LESSOR:
AMERICABLE, INCORPORATED RYAN/FLYING CLOUD ASSOCIATES
a Minnesota Corporation LIMITED PARTNERSHIP
By:Ryan Properties, Inc., its General
Partner
BY: /s/ BY: /s/
------------------------------ --------------------------------
ITS: President ITS: Vice President
------------------------------ --------------------------------
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EXHIBIT C
GUARANTEE OF LEASE
Guarantee of Lease made this 21st day February, 1989 given by North Star
Universal Inc., a Minnesota Corporation, (hereinafter called "Guarantor") to
RYAN/FLYING CLOUD ASSOCIATES LIMITED PARTNERSHIP (hereinafter called "Lessor").
WITNESSETH:
WHEREAS, simultaneously with the delivery of the Guarantee, Lessor is entering
into a lease dated February 21, 1989, by and between RYAN/FLYING CLOUD
ASSOCIATES (as "Lessor") and AMERICABLE, INCORPORATED, a Minnesota Corporation
(as Tenant), for premises known as 7450 Flying Cloud Drive, Eden Prairie,
consisting of approximately 34,818 square feet, and as more particularly
described in said Lease;
NOW, THEREFORE, the Guarantor hereby covenants, guarantees and agrees as
follows:
1. The Guarantor guarantees to Lessor the payment of all rent and
additional rent due under the terms of said Lease Agreement and the
performance of all terms, covenants, conditions, and agreements to be
performed or observed by the Tenant under the Lease throughout the term
of the Lease.
2. This Guarantee shall bind Guarantor and inure to the benefit of the
Lessor and their respective successors and assignees.
NORTH STAR UNIVERSAL, INC , a
Minnesota Corporation
BY: /s/ Jeffrey J. Michael
------------------------
ITS: Vice President
------------------------
DATE: March 3, 1989
------------------------
-19-
<PAGE> 20
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement, made and entered into this
13th day of September, 1989, by and between RYAN/FLYING CLOUD ASSOCIATES
LIMITED PARTNERSHIP, a Minnesota Limited Partnership (hereinafter called
"Lessor"), and AMERICABLE, INCORPORATED, a Minnesota Corporation (hereinafter
called "Tenant").
WITNESSETH:
WHEREAS, Lessor and Tenant entered into a Lease Agreement dated
February 21, 1989 for certain premises located within the Building commonly
described as 7450 Flying Cloud Drive, Eden Prairie, Minnesota (the "Demised
Premises"); and
NOW, THEREFORE, in consideration of the mutual terms, covenants,
conditions and agreements hereinafter contained, it is hereby agreed by and
between the parties hereto that the Lease Agreement is amended as follows:
1. Paragraph 1 is hereby amended to provide that the Demised
Premises does contain 34,341 square feet of area in the Building.
2. Paragraph 2 is hereby amended to provide that the Lease Term
shall be for a period of six (6) years and one (1) month commencing on the
first day of June, 1989, and ending on the last day of June, 1995, unless
sooner terminated as the Lease may provide.
3. Paragraph 2 of the Rider to Lease Agreement shall hereby be
amended to provide the following Base Rent Schedule.
Monthly Base Rent for the period June 1, 1989 through October 31,
1989 shall be abated.
Monthly Base Rent for the period November 1, 1989, through November
31, 1990 shall be TEN THOUSAND SIXTEEN AND 13/100 DOLLARS
($10,016.13) per month.
Monthly Base Rent for the period December 1, 1990 through June 30,
1994 shall be THIRTEEN THOUSAND ONE HUNDRED SIX AND 82/100 DOLLARS
($13,106.82) per month.
-20-
<PAGE> 21
Monthly Base Rent for the period July 1, 1994 through June 30, 1995
shall be SIXTEEN THOUSAND ONE HUNDRED SIXTY EIGHT AND 89/100 DOLLARS
($16,168.89) per month.
4. Paragraph 3 of the Rider to Lease Agreement shall hereby be
amended to provide that the tenants "prorata share" of Operating Costs shall be
the percentage obtained by dividing the rentable area of the Demised Premises
(34,341 square feet) by the total rentable area of the Building (77,348 square
feet), which calculation will result in a pro rata share of forty-four and
40/100 percent (44.40%).
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Lease Agreement to be executed as of the day and year first
written above.
Lessor: RYAN/FLYING CLOUD ASSOCIATES
LIMITED PARTNERSHIP
By:Ryan Properties, Inc.
Its:General partner
By: /s/
------------------------
Its: Vice President
------------------------
Tenant: AMERICABLE, INCORPORATED
By: /s/
------------------------
Its: Vice President
------------------------
-21-
<PAGE> 22
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT ("Second Amendment") is made
and entered into as of the 2nd day of March, 1995, by and between MINNEAPOLIS
INVESTMENT ASSOCIATES, L.P. ("Lessor") and AMERICABLE, INCORPORATED ("Tenant").
WITNESSETH:
WHEREAS, Ryan/Flying Cloud Associates Limited Partnership ("RFCALP")
and Tenant previously entered into and executed that certain Lease Agreement
dated February 21, 1989 ("Original Lease") for the rental by Tenant from RFCALP
of the premises more particularly described in Exhibit "A" attached to the
Original Lease;
WHEREAS, RFCALP and Tenant previously entered into and executed that
certain First Amendment to Lease Agreement dated September 13, 1989;
WHEREAS, RFCALP and Landlord previously entered into and executed
that certain Assignment and Assumption of Leases dated March 31, 1990, pursuant
to which RFCALP assigned to Lessor all RFCALP's right, title and interest in
the Original Lease (the Original Lease, as amended and assigned is herein
referred to as the "Lease Agreement"); and
WHEREAS, Lessor and Tenant mutually desire to modify and amend
certain provisions of the Lease Agreement upon the terms and conditions
contained herein.
NOW, THEREFORE, for and in consideration of the modifications
contained herein, $10.00, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
Lessor and Tenant hereby agree as follows:
1. The defined terms and terms of art used in this Second
Amendment, as indicated by the initial letter thereof being capitalized, shall
have the same meaning as set forth in the Lease Agreement, unless otherwise set
forth herein to the contrary.
2. Paragraph 2 of the Lease Agreement is hereby deleted in its
entirety and the following is substituted in lieu thereof:
-22-
<PAGE> 23
"Term. Tenant takes the Demised Premises from Lessor, upon the
terms and conditions herein contained, to have and to hold the
same for the term ("Lease Term") of Eleven (11) years and one
(1) month commencing on the first day of June, 1989, and ending
on the last day of June, 2000, unless sooner terminated as
herein provided."
3. Paragraph 2 of the Rider to the Lease Agreement is hereby
amended by adding the following language to the Base Rent Schedule:
"... Monthly Base Rent for the period July 1, 1995 - June 30,
1996 shall be $16,301.00.
Monthly Base Rent for the period July 1, 1996 - June 30, 1997
shall be $16,708.50.
Monthly Base Rent for the period July 1, 1997 - June 30, 1998
shall be $17,126.25.
Monthly Base Rent for the period July 1, 1998 - June 30, 1999
shall be $17,554.42.
Monthly Bass Rent for the period July 1, 1999 - June 30, 2000
shall be $17,993.25;
provided, however, Lessor shall provide a credit of $60,000.00 which shall be
applied to the Monthly Base Rent commencing July 1, 1995, which equates to 3.68
months of Base Rent.
5. Paragraph 9 of the Rider to the Lease Agreement is hereby
deleted in its entirety and the following is substituted in lieu thereof:
"Option to Renew
Tenant, provided it is not in default under any of the terms and
conditions of the Lease Agreement, shall have the option to renew the Lease
Term for one three year period. Such option shall be exercised, if at all, by
Tenant providing Lessor with at least six (6) months written notice of its
intent thereof prior to the expiration of the Lease Term. Base Rent shall be
adjusted on the first day of such option period to the then prevailing market
rate for lease transactions of comparable size and type and for similar
properties in the same general geographic area, giving due regard to
concessions then being offered to renewing tenants, such as refurbishment and
free rent.
6. The following paragraphs are hereby added to the Lease:
"Termination
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<PAGE> 24
Tenant shall have the right to terminate the last two years of the
Lease Term provided that: a) written notice of such intent to
terminate is provided to Lessor no later than November 30, 1997; and
b) a termination fee of $51,378.75 is paid to Lessor together with
the Monthly Base Rent no later than June 1, 1998."
"First Right to Lease
In the event Lessor desires to lease additional space within the
building of which the Demised Premises is a part, Lessor shall notify
Tenant, in writing, of same. Tenant shall respond to Lessor on or
before seven (7) days after its receipt of the aforesaid notice from
Lessor whether or not it wishes to proceed with negotiations to
occupy said space. In the event Lessor and Tenant are unable to
agree upon the terms of a lease agreement for said space on or before
thirty (30) days after Tenant receives notice from Lessor, as
aforesaid, then Lessor may lease such space to others, provided the
terms of the lease agreement for such space are the same as or no
more favorable to the new tenant than those offered by Lessor to
Tenant. The obligation of Landlord to offer such space to Tenant is
a one time right, and having once offered such space to Tenant and
then leased it to a third party, Landlord shall have no further
obligation to Tenant to offer such space to Tenant."
The Lease Agreement, as amended hereby, is hereby ratified and
affirmed by Landlord and Tenant.
In addition to the amendments set forth above, Landlord and Tenant
hereby agree that a three percent (3%) cash-out commission in the amount of
$30,846.00 shall be payable to Northco as follows: a) $15,423.00 to be paid
upon execution of this Second Amendment; and b) $15,423.00 to be paid on July
1, 1995. Tenant acknowledges that TMW Real Estate Management, Inc. has
represented Landlord in connection with this Second Amendment and shall be
compensated by Landlord pursuant to a separate agreement.
This Second Amendment shall have no force and effect and shall not be
binding on Landlord unless and until Tenant delivers to Landlord a duly
executed Reaffirmation of and Amendment to Guarantee in the form attached
hereto as Exhibit "A" and by reference incorporated herein.
This Second Amendment shall be governed exclusively by the provisions
hereof and by the laws of the State of Minnesota.
-24-
<PAGE> 25
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second
Amendment through their authorized officers, under seal, as of the year first
above written.
LANDLORD:
--------
Minneapolis Investment Associates, L.P. a
Georgia limited partnership
By: TMW Real Estate Group, L.P., its
general partner
By: TMW Real Estate Partners, Inc.,
its general partner
By: /s/
--------------------
Title: Vice President
-------------------------
[CORPORATE SEAL]
TENANT:
------
AMERICABLE, INCORPORATED, a
Minnesota corporation
By: Gary Eizenga
-------------------------------------------
[CORPORATE SEAL]
-25-
<PAGE> 1
EXHIBIT 10.13
DATED 1984
________________________________________________________________________________
QUEENSGATE DEVELOPMENTS LIMITED
--to--
THE BURTON GROUP PUBLIC LIMITED COMPANY
______________________________
L E A S E
--of--
Unit 4 Bracknell Business Centre Downhill
Road Bracknell Berkshire
______________________________
RJG017A3794
<PAGE> 2
H.M. LAND REGISTRY
LAND REGISTRATION ACTS 1925-1971
LEASE OF PART
County and District: BERKSHIRE BRACKNELL
Title Number
Property Unit 4 Bracknell Business
Centre Downmill Road Bracknell
T H I S L E A S E made the _________ day of ___________ One thousand nine
hundred and eighty four
B E T W E E N:-
(1) QUEENSGATE DEVELOPMENTS LIMITED whose registered office is situate at
Tectonic Place Holyport Road Maidenhead Berkshire SL6 2EZ ("the
Landlord") and
(2) THE BURTON GROUP PUBLIC LIMITED COMPANY whose registered office is at
Hudson Road Mills Leeds LS9 7DN ("the Tenant")
W I T N E S S E S as follows:
DEFINITIONS
1. IN this Lease unless the context otherwise requires:
(1) "the Landlord" means the party of the first
part and shall include the
estate owner for the time
being of the reversion
immediately expectant on the
determination of the term
hereby granted
(2) "the Tenant" means the party of the
second part and includes the
successors in title and the
permitted assigns of that
party
-2-
<PAGE> 3
(3) "the demised means the land and premises
premises" described in Part I of the
First Schedule hereto and
each and every part thereof
together with the
THE SCHEDULE
<TABLE>
<CAPTION>
Date of Lease Parties Property
- ------------- ------- --------
<S> <C> <C>
1st August 1984 Queensgate Developments Unit 4 Bracknell
Limited (1) The Burton Business Centre,
Group Public Limited Downmill Road,
Company (2) Bracknell, Berks.
</TABLE>
THE COMMON SEAL of THE BURTON )
GROUP PUBLIC LIMITED COMPANY )
was hereunto affixed in the )
presence of: )
Director
Secretary
THE COMMON SEAL of LANDMARK )
COMMUNICATIONS SERVICES )
LIMITED was hereunto affixed )
in the presence of: )
Director
Secretary
THE COMMON SEAL of LANDMARK )
COMMUNICATIONS SERVICES INC. )
was hereunto affixed in the )
presence of: )
Director
Secretary
-3-
<PAGE> 4
appurtenances thereto
belonging and any and all
additions alterations and
improvements thereto and the
Landlord's fixtures
and fittings as the same are
at the date hereof set out in
the Schedule annexed hereto
(4) "the Car Park " means the car park shown and
edged brown upon the plan
annexed hereto
(5) "the Centre" means the Landlord's
Business Centre of which the
demised premises form part as
the same is for the purposes
of identification edged green
(excluding first that part
edged and hatched green and
secondly the Car Park) on the
plan annexed hereto
(6) "the Estate" means the Centre together
with the Car Park
(7) "the initial rent" means the yearly rent
reserved by Clause 2(1) (a)
hereof
(8) "the insured risks" means risks in respect of
loss or damage by fire
lightning earthquake
explosion aircraft (other
than hostile aircraft) and
other aerial devices or
articles dropped therefrom
riot and civil commotion and
malicious damage storm or
tempest bursting or
overflowing of water tanks
apparatus or pipes flood
impact by road vehicles the
cost of shoring up demolition
and site clearance
Architect's Surveyors and
other professional fees and
such other risks or insurance
as may from time to time be
reasonably required by the
Landlord
(9) "the service charges" means 21.5 per centum of the
expenses and outgoings
together with VAT (if
-4-
<PAGE> 5
any) thereon (save to the
extent that the Landlord
can recover the same)
incurred by the Landlord
under the heads of
expenditure set out in Part I
of the Second Schedule hereto
in so far as the same relate
to the Centre and 26 per
centum of such expenses and
outgoings in so far as the
same relate to the Car Park
SCHEDULE OF LANDLORDS FIXTURES & FITTINGS
First Floor Office
Suspended Ceiling
Fitted Carpet
11 No. Twin Fluorescent lights, 6' long with diffuser
surface fitting
10 No. Radiators
8 No. Double Sockets (13 amp)
2 No. Door closers.
Landing, Lobby & Stairs
- -----------------------
3 No. Bulkhead lights
1 No. Emergency light
Fitted Carpet
Stair nosings
Ground Floor - Entrance Hall
- ----------------------------
Suspended Ceiling
Fitted Carpet
-5-
<PAGE> 6
Aluminum entrance mat
2 No. Radiators
4 No. Bulkhead lights
1 No. Emergency light
4 No. Door closers
Ground Floor - Office
- ---------------------
Suspended Ceiling
Fitted Carpet
9 No. Radiators
7 No. Double Sockets (13 amp)
2 No. Door closers
Lavatories
- ----------
Gents: 1 No. Urinal
1 No. W.C. and partition
2 No. Wash-hand basin
1 No. Hot water heater
2 No. Bulkhead lights
1 No. Radiator
Suspended Ceiling
Vinyl flooring
Ladies: 1 No. W.C. and partition
-6-
<PAGE> 7
1 No. Wash-hand basin
1 No. Hot water heater
1 No. Sanitary towel disposal unit
1 No. Radiator
2 No. Bulkhead lights
1 No. Extractor unit (motor serving both ladies & gents)
Suspended Ceiling
Vinyl flooring
Warehouse
- ---------
1 No. Boiler - Ideal Mexico, 55,000 output with pump,
time clock and thermostat
1 No. Door closer
15 No. Suspended Sodium High Bay lights
1 No. Drinking Water fountain
2 No. Panic bolts to emergency doors
3 No. Wanson TM140 thermomiser fan units mounted at high
level
1 No. Wanson thermobloc MTP 250 indirect fired heater INCL
purpose made support frame and complete with 178MM
diameter twin wall insulated flue with cravat and
gas vent terminal
2 No. Gas fired overdoor heater units rated at 350,000
BTH/HN complete with burners and centrifugal fans
and externally mounted motor all as manufactured by
the Wanson Company Limited both units mounted at
high level above vehicular door
-7-
<PAGE> 8
External
1 No. Light above shutter door
Plastic Unit number.
(10) "the Planning Acts" means the Town and Country Planning
Acts 1971 and 1972 and any Act or Acts
for the time being i l force amending
or replacing the same or of a similar
nature and includes any order
regulation direction or plan made or
issued thereunder or deriving validity
therefrom
(11) "planning permission" means any permission consent or
approval given or deemed to be given
under the Planning Acts
(12) "development" bears the same meaning as defined in
the Planning Acts
(13) "the prescribed rate" means three per centum per annum above
the base rate current from time to time
of such of the London Clearing Banks as
the Landlord shall from time to time
stipulate
DEMISE
2. IN consideration of the rents hereby reserved and of the covenants on
the part of the Tenant hereinafter contained the Landlord HEREBY
GRANTS and DEMISES unto the Tenant the demised premises TOGETHER WITH
the rights mentioned in Part II of the First Schedule hereto but
EXCEPT AND RESERVING as mentioned in Part III of the First Schedule
hereto TO HOLD the same except and reserved as aforesaid unto the
Tenant for a term of Twenty five years from the twenty third day of
July One thousand nine hundred and eighty four YIELDING AND PAYING
therefor unto the Landlord
-8-
<PAGE> 9
(1) yearly during the said term and so in proportion for any less period than
a year
(a) Until the Twenty second day of July One thousand nine
hundred and eighty nine the yearly rent of Forty thousand
eight hundred pounds (L.40,800)
(b) During the remaining years of the said term the initial
rent or such increased rent as may be payable in
accordance with the provisions of Clause 3 hereof
All such rents to be paid by equal quarterly payments in
advance on the Twenty fifth day of March the Twenty fourth day
of June the Twenty ninth day of September and the Twenty fifth
day of December in every year the first payment of rent
hereunder (being the proportionate payment in respect of the
period commencing on the first day of October One thousand nine
hundred and eighty four and ending on the Twenty fourth day of
December One thousand nine hundred and eighty four) to be made
on the said rent commencement date
(2) By way of additional rent from time to time on demand without
any deduction or abatement whatsoever
(a) an amount equal to the premium paid from time to time by
the Landlord for insuring or causing to be insured in a
sum not less than the full reinstatement value (to be
determined from time to time by the Landlord) the demised
premises and all fixtures and fittings of an insurable
nature (other than those which any tenant is entitled to
remove) against loss or damage by the insured risks
(b) an amount equal to the premium paid from time to time by
the Landlord for insuring against three years loss of the
rent and service charge from time to time payable under
these presents
RENT REVIEW
3. (1) IN this Clause unless the context otherwise requires:
(a) "Review Date" means the Twenty third day
of July in the years 1989
1994 1999 and 2004
-9-
<PAGE> 10
(b) "current market means the full market rent without
rent" any deduction whatsoever at which the
demised premises might reasonably be
expected to be let as a whole at the
Review Date in the open market without
a fine or premium and with vacant
possession by a willing landlord to a
willing tenant on a Lease for a term
of years equivalent to the remainder
of the term granted by this Lease at
such Review Date or for a term of ten
years whichever is the greater on the
same terms and conditions in all other
respects as this present Lease and upon
the supposition (if not a fact) that
the Tenant has complied with all the
obligations on its part herein imposed
and that the demised premises are fit
for immediate occupation and use and
that in case the demised premises have
been damaged or destroyed they have
been fully restored there being
disregarded:-
(i) Any effect on rent of the fact
that the Tenant or its
predecessors in title or any
permitted undertenant has or
have been in occupation of
the demised premises
(ii) Any effect on rent of any
improvement of the demised
premises or any part thereof
carried out by the Tenant or
its predecessors in title or
any permitted undertenant at
its or their own expense
otherwise than in pursuance
of any obligation to the
Landlord including
improvements
-10-
<PAGE> 11
carried out first
pursuant to the provisions of
clause 4(7) hereof save to
the extent arising pursuant
to or from any breach of the
other obligations of the
Tenant hereunder and secondly
by virtue of a License
granted by the Landlord
permitting the carrying out
of improvements at the cost
of the Tenant
(iii) Any goodwill attached to the
demised premises or any part
thereof by reason of any
trade or business carried on
therein by the Tenant or its
Predecessors in title or any
permitted undertenant
(2) The initial rent or other the rent payable by the Tenant
hereunder shall be subject to increase in accordance with the
following provisions of this Clause
(3) The Landlord shall be entitled by notice in writing given to
the Tenant not earlier than six month before and not later than
six months after a Review Date to call for a review of the
initial rent or other the rent for the time being payable by
the Tenant hereunder at the Review Date and if upon any such
review it shall be ascertained or determined that the current
market rent of the demised premises at the Review Date is
greater than the initial rent or other the yearly rent payable
hereunder immediately prior to such Review Date then as from
that Review Date the yearly rent payable hereunder shall be
increased to the current market rent so ascertained PROVIDED
THAT in no circumstances shall the rent payable hereunder
following such review be less than the yearly rent payable by
the Tenant immediately prior to the Review Date PROVIDED
FURTHER THAT if on any Review Date the Landlord shall be
obliged legally or otherwise to comply with any acts of
parliament order or direction dealing with the control of rent
or which shall restrict or modify the Landlord's right to
reserve or receive any increase in rent in accordance with the
terms and provisions of this clause then notwithstanding the
provisions of any Acts of Parliament order or direction
aforesaid the Landlord and the Tenant shall review
-11-
<PAGE> 12
the rent payable hereunder from the relevant Review Date in
accordance with the provisions of this present clause 3 there
being disregarded for the purposes of such review of rent in
addition to the matters referred to in paragraphs (i) (ii) and
(iii) of sub clause (b) of paragraph (1) of this present clause
3 any effect on rent of any law for the time being in force
which imposes a restraint on receiving an increase in the rent
of the demised premises and any increase in the rent payable
hereunder by virtue of any such review shall commence to be
payable upon any relaxation removal or modification of such
enactment order or direction the first payment to be in respect
of the period beginning on the day after any relaxation removal
or modification of such enactment order or direction and ending
on the day preceding the quarter day next following any
relaxation removal or modification as aforesaid
(4) The review as aforesaid shall in the first instance be made by
the Landlord and the Tenant or their respective Surveyors in
collaboration but if no agreement as to the amount of the
current market rent at the Review Date shall have been reached
between the parties hereto or their Surveyors by whichever is
the later of three months after the date of the Landlord's
notice calling for such review or the relevant Review Date then
the question as to the amount of the current market rent of the
demised premises at the Review Date shall be referred to a
single arbitrator to be appointed in default of agreement
between the parties on the application of either party by the
President for the time being of the Royal Institution of
Chartered Surveyors and this sub-clause shall be deemed to be a
submission to arbitration in accordance with the Arbitration
Acts 1950 to 1979 or any statutory modification or re-enactment
thereof for the time being in force The decision of the
arbitrator shall be final and binding on the Landlord and the
Tenant The liability for the costs of such arbitrator shall be
decided by the arbitrator
(5) If upon the review the amount of any increased rent shall not
be ascertained or determined prior to the Review Date the
Tenant shall continue to pay at the yearly rate payable
immediately prior to the Review Date until the quarter day next
following the ascertainment or determination of any increased
rent whereupon there shall be due as a debt payable by the
Tenant to the Landlord on demand a sum equal to the amount by
which the increased yearly rent shall exceed the yearly rent
previously payable apportioned on a daily basis from the Review
Date TOGETHER WITH interest thereon at the rate of three per
-12-
<PAGE> 13
centum per annum below the prescribed rate from whichever shall
be the later of (i) the relevant Review Date and (ii) the date
on which the Landlord gives notice pursuant to the provisions
of clause 3(3) hereof until the date of payment thereof
provided that for the purposes of any review of rent payable
hereunder pursuant to the provisions of the second proviso to
clause 3(3) hereof no such interest shall be payable
(6) If upon the review as aforesaid it shall be agreed or
determined that the rent previously payable hereunder shall be
increased the Landlord and the Tenant shall forthwith
thereafter complete and sign a written memorandum recording the
increased rent thenceforth payable
TENANTS COVENANTS
4. THE Tenant for itself and its assigns and to the intent that the
obligations shall continue throughout the term hereby granted HEREBY
COVENANTS with the Landlord as follows:
(1) (a) To pay the reserved yearly rent at the time and in manner
aforesaid without any deduction or abatement whatsoever
(except in any case where the Tenant is obliged by
statutory authority to make any deduction)
(b) That if any sums payable by the Tenant to the Landlord
under this Lease shall not be paid within twenty one days
after the same shall have become due or have been demanded
(as the case may be) then to pay interest thereon at the
prescribed rate calculated on a day to day basis from the
date of the same being due or demanded (as the case may
be) down to the date of payment and the aggregate amount
for the time being so payable shall at the option of the
Landlord be recoverable by action or as rent in arrear
(2) To pay the service charges at the times and in the manner
provided in Part II of the Second Schedule hereto
(3) To pay and discharge all general and water rates taxes duties
charges assessments impositions and outgoings whether
parliamentary parochial local or of any other description which
are now or may at any time hereafter be taxed charged or
imposed upon or payable in respect of the demised premises or
on the owner or occupier in respect thereof and to pay all
proper proportions thereof (such proportions being the
-13-
<PAGE> 14
same as contained in the definition "Service Charges") in
respect of any parts of the Estate which the Tenant may use or
be entitled to use although not included in the demised
premises other than
(a) any tax or levy arising in respect of the grant of this
Lease and
(b) any tax in respect of any dealings with the reversion
expectant on the term hereby granted
(4) To keep the demised premises including the water ventilation
and sanitary and heating apparatus (if any) and the walls
fences gates roads sewers drains (exclusively serving the
demised premises) plant and machinery and appurtenances
thereof in good and substantial repair and condition and
maintained cleansed and amended in every respect and as and
when necessary to replace all landlord's fixtures and fittings
and appurtenances belonging to the demised premises with others
which are new and of best quality and serve an equivalent
purpose damage by insured risks excepted unless payment of any
monies payable under the Insurance Policies effected by the
Landlord shall be refused by reason of the act omission or
default of the Tenant or any undertenant or the servants agents
and licensees of the Tenant or any undertenant
(5) Without prejudice to the generality of subclause (4) hereof:
(a) as and whenever necessary and as to both the exterior and
the interior of the demised premises in every fifth year
of the said term and also as to both interior and exterior
during the last year of the said term (but not during any
two consecutive years) to have prepared and painted or
otherwise decorated, or treated (as the case may be) all
surfaces and other portions fabrics and finishes (i)
usually painted with two coats at least of best quality
paint or (ii) otherwise decorated or treated with best
quality materials in a proper and workmanlike manner and
so often as may be necessary to have professionally
treated in accordance with the best approved manner for
preserving and protecting the same all other parts of the
demised premises requiring treatment for preservation and
protection and as and when necessary to clean make good
and treat with suitable preservative any rough cast stucco
work block panels or walls All such painting decoration or
other treatments to be carried out by the Tenant to the
reasonable satisfaction of the Landlord
-14-
<PAGE> 15
and in accordance with such reasonable directions in
regard thereto as may from time to time during the Term be
communicated to the Tenant by the Landlord or the duly
authorized agent of the Landlord
(b) to carry out such painting decoration or other treatment
during the last year of the said term in colours tints and
materials previously approved in writing by the Landlord
(such approval not to be unreasonably withheld or delayed)
(c) to replace all glass in the demised premises as and when
the same is broken or damaged with glass of the same
colour tint and specification and in conformity to the
glass fitted in the remainder of the demised premises
(d) to clean all windows (both externally and internally) and
the window frames and other glass comprised in the Demised
Premises at least once in every month
(6) At the expiration or sooner determination of the said term
quietly to yield up unto the Landlord the demised premises (but
not with trade and other Tenants fixtures) in such state and
condition as shall in all respects be consistent with a full
and due performance by the Tenant of the covenants contained in
this Lease
(7) At all times during the said term to observe and comply in all
respects with all and any provision requirement and direction
of any and every enactment (which expression in this covenant
includes as well any and every Act of Parliament already or
hereafter to be passed as any and every order regulation
bye-law or direction already or hereafter to be made or issued
under or in pursuance
-15-
<PAGE> 16
of any such Act) or which may be at any time ordered by a
factory inspector or any local authority so far as they relate
to or affect the demised premises or any additions or
improvements thereto or the user thereof for the purpose of any
manufacture process trade or business or the use or employment
therein of any person or persons or any fixtures or fittings
plant machinery or chattels for the time being affixed thereto
or being therein or thereupon or used for the purposes thereof
and to execute all works and provide and maintain all
arrangements which by or under any enactment or by any
government department local authority factory inspector or
other public authority or duly authorized officer or court of
competent jurisdiction acting under or in pursuance of any
enactment are or may be directed or required to be executed
provided and maintained at any time during the said term upon
or in respect of the demised premises or any additions or
improvements thereto or in respect of any such user thereof or
the use or employment therein of any person or persons or
fixtures machinery plant or chattels as aforesaid whether by
the Landlord or Tenant thereof and to indemnify the Landlord at
all times against all costs charges and expenses of or
incidental to the execution of any works or the provision or
maintenance of any arrangements so directed or required as
aforesaid and not at any time during the said term knowingly to
do or omit or suffer to be done or omitted on or about the
demised premises any act or thing by reason of which the
Landlord may under any enactment incur or have imposed upon it
or become liable to pay any penalty damages compensation costs
levy charges or expenses PROVIDED ALWAYS that nothing in this
Clause contained shall be construed as giving to the Tenant
liberty or license to act or do anything in any way in
contravention of the provisions herein contained as to the
procuration of all necessary licenses consents permissions or
approvals
(8) Within seven days of the receipt (by the Tenant or its
authorized Agent) of the same or such earlier date as shall be
at least ten working days prior to the expiry of the matter in
question to give full particulars to the Landlord of any
permission notice order direction or proposal for a notice
order or direction made given or issued to the Tenant by any
government department local or public authority or factory
inspector under or by virtue of any statutory powers and if so
required by the Landlord to produce such permission notice
order or direction or proposal for a notice order or direction
to the Landlord AND ALSO without delay to take all reasonable
or necessary steps to comply with any such notice order or
direction so far as the same falls to be so dealt with as a
Tenant's liability hereunder AND ALSO at the request and cost
of the Landlord to make or join with the Landlord in making
such objections or representations against or in respect of any
such notice order proposal or direction as aforesaid as the
Landlord acting reasonably shall deem expedient
(9) (a) At all times during the said term to comply in all
respects with the provisions and requirements of the
Planning Acts and of all planning permissions so far as
the same respectively relate to or affect the demised
premises or any part thereof or any operations works acts
or things already or hereafter to be carried out
-16-
<PAGE> 17
executed done or omitted thereon or the use thereof for
any purpose and
(b) During the said term so often as occasion shah require at
the expense in all respects of the Tenant to obtain all
such planning permissions and serve all such notices as
may be required for the carrying out of any operations by
the Tenant on the demised premises or the institution or
continuance thereon of any use thereof which may
constitute development but so that no application for
planning permission shall be made without the previous
written consent of the Landlord (such consent not to be
unreasonably withheld or delayed) and
(c) Subject only to any statutory direction to the contrary to
pay and satisfy any charge or levy that may now or
hereafter be imposed under the Planning Acts in respect of
the carrying out or maintenance of any such operations or
the institution or continuance of any such use as
aforesaid and further to indemnify the Landlord against
any liability of the Landlord to pay Development Land Tax
or other similar payment or charge arising from any such
operations or use as aforesaid or any change or changes
thereto
(d) Notwithstanding any consent which may be granted by the
Landlord under this Lease not to carry out or make any
alteration or addition to the demised premises or any
change of use thereof (being an alteration or addition or
change of use which is prohibited by; or for which the
Landlord's consent is required to be obtained under this
Lease and for which a planning permission needs to be
obtained) before all such notices and all such necessary
planning permissions have been produced to the Landlord
and in the case of a Planning Permission approved by the
Landlord in writing as satisfactory (such approval not to
be unreasonably withheld or delayed) But so that the
Landlord may refuse so to give its approval to any such
notice or planning permission on the ground that any
condition contained therein or omitted therefrom or the
period thereof in the reasonable opinion of its Surveyor
would be or be likely to be prejudicial to its interest in
the demised premises or to other neighboring or adjacent
premises belonging to the Landlord whether during the said
term or following the determination or expiration thereof
and
-17-
<PAGE> 18
(e) Unless the Landlord shall otherwise direct to carry out
and complete before the expiration or sooner determination
of the said term (i) any works stipulated to be carried
out to the demised premises by a date subsequent to such
expiration or sooner determination as a condition of any
planning permission granted to the Tenant before such
expiration or determination and (ii) any development begun
by or on behalf of the Tenant upon the demised premises in
respect of which the Landlord shall or may be or become
liable for any charge or levy under the Planning Acts and
(f) If and when called upon so to do to produce to the
Landlord or the Landlord's Surveyor all such plans
documents and other evidence as the Landlord may
reasonably require in order to be satisfied that the
provisions of this covenant have been complied with in all
respects
(10) To permit the Landlord and its surveyors or agents with or
without workmen and others at all reasonable hours during the
daytime on reasonable prior written notice being given (except
in emergency) to enter the demised premises or any part thereof
to ensure that nothing has been done therein that constitutes a
breach of any of the covenants herein contained and also to
view and examine the state and condition thereof or to take
inventories of the fixtures and fittings therein or for the
purpose of executing any improvement they may undertake to
execute or of making any inspection which may be required for
the purposes of the Landlord and Tenant Acts 1927 and 1954 or
any other Act for the time being affecting the demised premises
(11) To forthwith commence and thereafter diligently proceed to
repair and make good all breaches of covenant defects and wants
of reparation for which the Tenant may be liable under the
covenants herein contained of which notice shall have been
given by the Landlord to the Tenant within two calendar months
after the giving of such notice or sooner if requisite
(12) That if the Tenant shall at any time make default in the
performance of any of the covenants herein contained relating
to the repair decoration cleansing or condition of the demised
premises or any part thereof of which notice has been given as
aforesaid it shall be lawful for the Landlord or its Agents and
workmen (but without prejudice to the
-18-
<PAGE> 19
right to re-entry hereinafter contained) to enter upon the
demised premises or any part thereof and at the expense of the
Tenant to carry out such repairs cleansing or decoration as may
be necessary in accordance with the covenants and provisions
herein contained and the costs and expenses thereof (including
any fees) shall be paid by the Tenant to the Landlord on demand
(13) To pay to the Landlord all costs charges and expenses which may
be incurred by the Landlord in abating a nuisance and executing
all such works as may be necessary for abating a nuisance in
obedience to a notice served by a local or public authority on
the Landlord or the Tenant in respect of the demised premises
(14) To permit the Landlord or its Agents at any time within six
calendar months next before the expiration or sooner
determination of the said term to enter upon the demised
premises and to fix and retain without interference upon any
suitable part or parts thereof a notice board for reletting or
selling the same and that the Tenant will not remove or obscure
the same and at all times during the said term to permit all
persons by order in writing of the Landlord or its agents to
view the demised premises at all convenient hours in the
daytime without interruption
(15) To pay to the Landlord all costs charges and expenses,
including reasonable legal costs and fees payable to a Surveyor
or Architect) which may be incurred or payable by the Landlord
in or in contemplation of any proceedings relating to the
demised premises under Sections 146 and 147 of the Law of
Property Act 1925 (whether or not any right of re-entry or
forfeiture has been waived by the Landlord or the Tenant has
been relieved under the provisions of the said Act) or in the
preparation and service of a Schedule of Dilapidations for
which the Tenant is liable before or after the expiry of the
term or of any application to the Landlord for any consent
pursuant to the covenants herein contained and to keep the
Landlord fully and effectually indemnified against all costs
expenses claims and demands whatsoever in respect of the said
applications consents and proceedings
(16) Not to keep place or store or permit or suffer to be kept
placed or stored in or upon or about the demised premises any
materials of a dangerous combustible or explosive or corrosive
nature or the keeping or storing of which may contravene any
statute order or local regulation or bye-
-19-
<PAGE> 20
law or constitute a nuisance to the occupiers of neighboring or
adjoining premises
(17) (a) Not to do or omit or suffer to be done or omitted any act
matter or thing whatsoever the doing or omission of which
would make void or voidable any policy of insurance on the
demised premises or on the Landlord's fixtures and
fittings therein or any adjoining or contiguous property
belonging to the Landlord or cause the premiums payable in
respect of any insurance effected in relation to the
demised premises or any adjoining or contiguous premises
to be increased beyond the normal rate
(b) In the event of the demised premises or any part thereof
being destroyed or damaged by any of the insured risks to
give immediate notice thereof to the Landlord
(c) To observe all reasonable requirements of the Landlord's
insurers and to indemnify the Landlord against any breach
of such requirements
(d) In the event of the demised premises or any part thereof
being destroyed or damaged by any of the insured risks and
the insurance money under any insurance against the same
effected thereon by the Landlord being wholly or partly
irrecoverable by reason solely or in part of any act
neglect or default of the Tenant or any Undertenant or
servants agents or Licensees of the Tenant or any
Undertenant then and in every such case the Tenant will
forthwith (in addition to the said rent) pay to the
Landlord the whole or (as the case may require) a fair
proportion of the cost of completely rebuilding and
reinstating the same
(18) Not at any time during the said term to make any alteration or
addition to the electrical installation of the demised premises
save in accordance with the terms and conditions laid down by
the Institution of Electrical Engineers and the Regulations of
the Electricity Supply Authority and (in the case of a
substantial alteration or addition) with the Landlord's
previous consent in writing (such consent not to be
unreasonably withheld or delayed)
(19) Not without the previous consent in writing of the Landlord
(such consent not to be unreasonably withheld or delayed and if
granted to be without prejudice nevertheless to the provisions
of sub-clause (9)
-20-
<PAGE> 21
hereof) nor except in accordance with plans and specifications
previously submitted in triplicate to and approved by it nor
except to the reasonable satisfaction of its Surveyors to cut
maim alter or remove any or any part of the principal structure
beams columns roofs walls or other structural parts of the
demised premises or to make any alterations in the plan or
elevation of the demised premises or any part thereof or affect
alter or modify the external appearance thereof or make any
structural erection addition or alterations to the demised
premises either externally or internally or to carry out any
development on or to.the demised premises or any part thereof
And to pay all reasonable costs and expenses incurred by the
Landlord (including legal and survey fees) of or in connection
with the grant of any license or consent to make or carry out
any such alterations erections additions or development or any
improvement which the Tenant may be entitled to make on or to
the demised premises under or by virtue of the Landlord and
Tenant Acts 1927 and 1954 or any other Act for the time being
affecting the demised premises and of or in connection with the
approval and supervision from time to time of any such works
(20) Not to use the demised premises or any part thereof or permit
the same to be used except for a purpose within Use Class III
and/or Use Class IV and/or Use Class X of the Town and Country
Planning (Use Classes) Order 1972 with ancillary offices and
car parking subject however to the Tenant obtaining all
necessary planning and other consents and licenses for such use
AND in particular (but without derogating from the generality
of the foregoing) not at any time to use the demised premises
or any part thereof or allow the same to be used as a residence
or sleeping place for any person or persons nor for any noisy
noxious or offensive trade or business nor for the purpose of
any unlawful betting transaction or unlawful gaming within the
meaning of the Gaming Acts (which expression shall for the
purposes of this sub-clause mean the Betting Gaming and
Lotteries Act 1963 and Gaming Act 1968 the Betting Gaming
Lotteries (Amendment) Act 1971 and the Betting and Gaming
Duties Act 1972 or any statutory modification or re-enactment
thereof for the time being in force and any regulations or
orders made or having effect thereunder) and not to make or
permit or suffer to be made any application for a betting
office license or a licensed registration under the Gaming Acts
in respect of the demised premises or any part thereof
-21-
<PAGE> 22
(21) Not to do or permit or suffer to be done on the demised
premises or any part thereof anything which shall or may be or
become or cause annoyance nuisance damage disturbance injury or
danger to the Landlord or the owners lessees or occupiers of
the premises in the neighborhood and to keep the Landlord fully
and effectually indemnified against all actions proceedings
damages costs expenses claims and demands whatsoever arising
out of or in consequence of any breach or non-observance of
this covenant
(22) Not to sell goods by auction or permit or suffer any sale by
auction to be held within or upon the demised premises or any
parts thereof
(23) To do all such things as the Landlord may reasonably require or
deem proper for preventing any encroachment or easement being
made or acquired in over or against the demised premises
(24) At all times during the said term to comply with all
requirements from time to time of the appropriate authority in
relation to means of escape from the demised premises in case
of fire and at the expense of the Tenant to keep the demised
premises sufficiently supplied and equipped with fire fighting
and extinguishing apparatus and appliances and suitable in all
respects to the type of user of or business manufacture process
or trade carried on upon the demised premises which shall be
open to the inspection and maintained to the reasonable
satisfaction of the Landlord (so far as not opposed to the
legal obligation of the Tenant) and also not to obstruct the
access to or means of working such apparatus and appliances by
their operations at or connected with the demised premises
(25) (a) Not to assign underlet or part with the possession of part
only of the demised premises
(b) Not to assign or underlet the whole of the demised
premises unless:
(i) In the case of an underletting that no fine or
premium is taken and the rent reserved by the
underlease is the full market rent which can
reasonably be obtained without taking any fine or
premium and is subject to review (in an upwards
direction only) at least as frequently as the rent
under this Lease is liable to be reviewed and the
underlease contains an absolute covenant prohibiting
any
-22-
<PAGE> 23
assignment or underletting of part of the premises
thereby demised or any assignment of the whole of
the premises thereby demised without the prior
written consent of the Landlord (such consent not to
be unreasonably withheld or delayed)
(ii) In the case of an assignment any intended assignee
has first by deed covenanted directly with the
Landlord that during the residue of the term then
subsisting the assignee will pay the rent reserved
by and will observe and perform the covenants and
conditions contained herein including a covenant not
to further assign the demised premises without such
consent as hereinafter provided and further upon the
Landlord's reasonable request in that behalf that
such person persons or corporation as the Landlord
shall so reasonably require having regard to the
financial status of the intended assignee and other
relevant circumstances shall act as guarantors for
such assignee and shall covenant (jointly and
severally in the case of two or more persons) with
the Landlord that during the residue of the term
then subsisting the rent for the time being
hereinbefore reserved will be paid and the covenants
on the part of the Tenant contained herein will be
performed and observed and will indemnify and keep
the Landlord indemnified from and against all
actions proceedings costs claims and demands arising
by reason of the non-payment of rent or the failure
to observe the Tenant's covenants as aforesaid and
such covenant shall also provide that any neglect or
forbearance of the Landlord in endeavoring to obtain
payment of the rent or any delay to take any steps
to enforce performance by such assignee of the said
covenants and any time which may be given by the
Landlord to the said assignee or any variation in
the terms of these presents agreed between the
Landlord and the assignee or the transfer of the
reversion expectant upon the term hereby granted or
any part thereof or the assignment of this Lease or
the release of any of the guarantors (if more than
one) from liability or any other act omission matter
or thing whatever whereby (but for this provision)
the guarantors would be exonerated either wholly or
in part from the guarantee other than a release
-23-
<PAGE> 24
under seal given by the Landlord shall not release
or in any way lessen or affect the liability of the
guarantors and shall further provide that should the
assignee be a company and go into liquidation and
the liquidator disclaim this Lease or if the said
company should be wound up or cease to exist then
the guarantors will should the Landlord so require
accept a new lease of the demised premises such new
lease to commence as from the date .of such
disclaimer or (as the case may be) such winding-up
or ceasing to exist and to be for the residue then
unexpired of the term and to be at the rent then
payable (such rent to commence as from the date of
such disclaimer or winding-up or cesser of existence
and such new Lease to be subject to the same
Tenant's covenants and to the same provisos and
conditions as those in force immediately before such
disclaimer) and to be granted at the cost in all
respects of the guarantors in exchange for a
counterpart duly executed by the guarantors
(c) Notwithstanding but without prejudice to the preceding
paragraphs of this sub-clause not to assign or underlet or
part with possession of the whole of the demised premises
or to permit the creation or assignment of any underlease
or other derivative interest in the whole of the demised
premises without in each case the prior license of the
Landlord such license to be given under seal and not to be
unreasonably withheld or delayed
(d) Not at any time expressly or impliedly to waive the
covenants to be inserted in any underlease pursuant to
sub-paragraph (i) of paragraph (b) of this sub-clause but
at all times to enforce the same
(e) Save as hereinbefore permitted not to part with or share
the possession of the demised premises or any part thereof
or grant any license to occupy relating thereto provided
that the sharing of occupation by a subsidiary or
subsidiaries of the Tenant (within the meaning of Section
154 of the Companies Act 1948) is expressly permitted
without consent having first been obtained but only on
condition that no relationship of Landlord and Tenant is
thereby created
-24-
<PAGE> 25
(26) To give notice in writing of every assignment assent transfer
underlease mortgage charge or devolution of or other instrument
relating to the demised premises or any part thereof and to
produce the instrument of such assignment assent transfer
underlease mortgage or charge or any Probate or Letters of
Administration or other instrument (or a properly certified
copy thereof) in any way relating to the demised premises
within Twenty one days after the execution or grant thereof to
the Solicitors of the Landlord and to pay their reasonable fee
for the registration thereof
(27) Not to suspend or permit or suffer to be suspended any heavy
load from the ceilings or main structure of the demised
premises nor load or use or permit or suffer to be loaded or
used the floor or structure of the demised premises in any
manner which will in any way impose a weight or strain in
excess of that which such premises are constructed to bear with
due margin for safety or which will in any way strain or
interfere with the structural members thereof And not to keep
or use or permit or suffer to be kept or used in the demised
premises any petrol benzol or any other highly inflammable
spirit liquor fluid or substance or any materials which may
attack or in any way injure by percolation corrosion vibration
or otherwise the structure of any building comprised therein or
the keeping or using whereof may contravene any general or
local Acts of Parliament or any local regulation or bye-law
(28) Not to store goods or materials upon the Estate nor to form any
refuse dump or rubbish or scrap heap on the demised premises or
any part of the Estate but to remove regularly all refuse
rubbish and scrap which may have accumulated on .the demised
premises and all used tins cans boxes and other containers and
to keep the same generally free from weeds deposits of
materials or refuse and not to bring or keep or suffer to be
brought or kept upon the demised premises anything which is or
may become in the opinion of the Landlord untidy unclean
unsightly or in any way detrimental to the amenity of the
neighborhood and within two months to comply with the
reasonable requirements of any written notice to restore any
amenity injured as aforesaid and in the event of the Tenant
failing to comply with such notice the Landlord shall be
entitled to enter upon the demised premises and carry out any
works necessary to comply with such notice and to recover the
cost thereof from the Tenant
-25-
<PAGE> 26
(29) To permit the Landlord and the tenants or occupiers of any
adjoining or adjacent property if authorized in writing by the
Landlord and their servants agents and workmen at all
reasonable times to enter upon the demised premises (and except
in an emergency having given reasonable previous notice in
writing to the Lessee) to execute repairs alterations painting
redecoration or other works to any adjoining property the
person or persons exercising such right making good all damage
thereby occasioned and causing as little disturbance as
possible to the Tenant and compensating the Tenant for any loss
suffered by the Tenant as a result of the exercise of any such
right and also to permit the Landlord and the lessees tenants
or occupiers of any adjoining or adjacent property authorized
as aforesaid and their respective servants contractors agents
and workmen at any time (having except in an emergency given
reasonable previous notice in writing to the Tenant) to enter
upon the demised premises for the purpose of repairing
cleansing or maintaining any sewers drains gutters pipes cables
conduits and wires in or under the demised premises for the
accommodation of any adjoining or adjacent property the person
or persons exercising such right making good all damage thereby
occasioned and causing as little disturbance as possible to the
Tenant and compensating the Tenant in manner aforesaid AND also
in case any dispute or controversy shall at any time arise
between the lessees tenants or occupiers of any adjoining or
adjacent property relating to any ditches watercourses culverts
sewers drains gutters pipes cables wires or to any easements or
privileges whatsoever affecting or relating to the demised
premises or any adjoining or adjacent property to allow the
same from time to time to be settled and determined by the
Landlord's Surveyor in such manner (save in the case of
manifest error) as by writing under his hand he shall direct in
that behalf
(30) Upon making an application for any consent or approval which is
required hereunder the Tenant shall disclose to the Landlord
such information as the Landlord may reasonably require and
shall pay the reasonable legal expenses and surveyors' fees
(including disbursements and stamp duty) of the Landlord on all
licenses and the duplicates thereof resulting from all such
applications by the Tenant including charges fees and
disbursements actually incurred where consent is refused or the
application is refused
(31) To permit every person or body entitled to any right easement
power or privilege in over or upon the demised premises or any
part thereof to exercise the same without hindrance or
objection
-26-
<PAGE> 27
(32) Not to obstruct the access roads or footpaths forming part of
the Estate in any way whatsoever and in particular not to
permit any vehicles belonging to or calling upon the Tenant to
stand on the said access roads and to carry out all loading and
unloading within the demised premises
(33) (a) Not to permit oil grease or other corrosive or deleterious
objectionable dangerous poisonous or explosive matter or
substance to enter the drains sewers sewage pumps ditches
watercourses or culverts and to take all reasonable
measures for ensuring that any effluent discharged will
not be corrosive or otherwise harmful or cause obstruction
or deposit within the sewage disposal works or to the
bacteriological process of sewage purification
(b) Not to use any fuel burning apparatus on the demised
premises or any part thereof other than such as shall have
been approved in writing by the Landlord prior to such use
(34) At all times during the said term to observe and perform such
reasonable regulations (if any) in respect of the Estate as the
Landlord may think necessary and expedient for the proper
management of the Estate
(35) Not to display any boards posters notices or signs upon the
demised premises except one notice or sign giving the name of
the Tenant and the business carried on at the demised premises
such one notice or sign and the location thereof to be
previously approved in writing by the Landlord such approval
not to be unreasonably withheld or delayed
(36) To observe and perform the agreements covenants and
stipulations contained or referred to in the property Charges
Registers to the Landlords freehold Title No. BK 209019 so far
as the same relate to the demised premises and still exist and
are enforceable and to keep the Landlord indemnified against
all actions proceedings costs claims and demands in any way
relating thereto pursuant to any breach thereof
(37) Not to obstruct the roadways within or obstruct or park upon
the car parking spaces in the Car Park save for those spaces
referred to in clause 2 of Part II of the First Schedule hereto
-27-
<PAGE> 28
LANDLORDS COVENANTS
5. THE Landlord HEREBY COVENANTS with the Tenant as follows:
(1) That the Tenant paying the said yearly rent hereby reserved and
observing and performing the covenants conditions and
agreements hereinbefore contained on its part to be observed
and performed shall and may quietly enjoy the demised premises
during the said term without any interruption by the Landlord
or persons lawfully claiming under the Landlord
(2) (a) To insure the demised premises against the insured risks
in some insurance office of repute in the full
reinstatement value thereof (to be determined from time to
time by the Landlord) and against three years loss of rent
and service charge and in case of destruction or damage by
any of the insured risks (unless payment of any money
payable under any policy of insurance shall be refused
either in whole or in part by reason of any act neglect or
default of the Tenant or any undertenant or servants
agents or licensees of the Tenant or any undertenant) to
ensure that all moneys (other than monies paid in respect
of loss of rent and service charge) payable under or by
virtue of any such policy of insurance as aforesaid shall
with all convenient speed (subject to all planning bye-law
or other consents or permissions necessary to enable the
Landlord so to do) be laid out and applied in rebuilding
repairing or otherwise reinstating the demised premises
the Landlord making good any deficiencies in the insurance
monies out of its own funds
(b) To note the interest of the Tenant on any fire policy
effected by the Landlord and upon request from the Tenant
to produce evidence of payment of the current years
premium for the aforesaid insurance once yearly and
further to provide a copy of such extracts from any such
policy or policies effected by the Landlord as will enable
the Tenant to know the full extent of the premises
fixtures and fittings covered thereby the risks insured
against and any exceptions conditions or limitations to
which the said policy is subject
(3) (Subject to payment by the Tenant of the rent and service
charge) to provide the services set out in the Second Schedule
hereto
-28-
<PAGE> 29
SUSPENSION OF RENT
6. IF during the said term the demised premises or any part thereof or
the means of access thereto shall be destroyed or damaged by any of
the insured risks so as to be unfit for occupation or use and the
policy or policies of insurance effected by the Landlord shall not
have been vitiated or payment of the policy moneys refused in whole
or in part in consequence of any act or default of the Tenant the
rent and service charge hereby reserved or a fair proportion thereof
according to the nature and extent of the damage sustained be
suspended until the demised premises shall have again been rendered
fit for occupation or use by the Tenant and any dispute concerning
this clause shall be determined by a single arbitrator in accordance
with the Arbitration Acts 1950 and 1979 or any statutory modification
or re-enactment thereof for the time being in force
GENERAL PROVISIONS
7. PROVIDED ALWAYS and IT IS HEREBY AGREED AND DECLARED THAT:
(1) These presents are made upon the express condition that if the
said rent or any part thereof shall be unpaid for Twenty one
days after any of the days hereinbefore appointed for payment
thereof whether the same shall have been lawfully demanded or
not or if any covenant on the Tenant's part herein contained
shall not be performed or observed or if the Tenant being an
individual or firm shall become bankrupt or compound or arrange
with his or its creditors or being a Company shall go into
liquidation either compulsory or voluntary (except for the
purpose of reconstruction or amalgamation) then and in any of
the said cases and thenceforth it shall be lawful for the
Landlord or any person or persons duly authorized by the
Landlord in that behalf into or upon the demised premises or
any part thereof in the name of the whole to re-enter and the
same to repossess and enjoy as if these presents had not been
made without prejudice to any right of action or remedy of
either party in respect of any antecedent breach of any of the
covenants by the other herein contained
(2) Each of the Tenant's covenants herein contained shall remain in
full force both at law and in equity notwithstanding that the
Landlord shall have waived or released temporarily or
permanently revocably or irrevocably or otherwise howsoever a
similar covenant or similar covenants affecting other adjoining
or neighboring premises for the time being belonging to the
Landlord
-29-
<PAGE> 30
(3) The provisions of Section 196 of the Law of Property Act 1925
as amended by the Recorded Delivery Service Act 1962 shall
apply to all notices required to be served hereunder
(4) Where the context so requires or admits the masculine includes
the feminine the singular includes the plural and where two or
more persons are included in the expression "the Tenant"
I N W I T N E S S whereof this Lease was duly executed the day and
year first before written
THE FIRST SCHEDULE
PART I
The demised premises
Unit 4 Bracknell Business Centre Downmill Road Bracknell in the County of
Berkshire as the same is for the purposes of identification shown edged red on
the plan annexed hereto
PART II
Rights
1. In common with the Landlord its tenants servants agents those
authorized by them and all others having the same rights at all times
to pass over and along the access roads forming part of the Estate
with or without vehicles and on foot only over the footpaths
2. The exclusive right to park motor cars in the spaces delineated and
numbered 27 to 29 inclusive 31 to 36 inclusive and 94 to 96 inclusive
upon the plan together with vehicular and pedestrian access thereto
and therefrom over the roadways within the Car Park
3. The right to free passage and running of water soil electricity and
other services from and to the demised premises through the drains
sewers pipes wires and conduits serving the demised premises
constructed in or under any adjoining land of the Landlord or in
under or over any other property across which the Landlord shall have
rights to carry the same
-30-
<PAGE> 31
4. A right of passage on foot only in case of emergency over and along
the area shown coloured yellow on the plan and thence to a place of
safety
5. A right of support shelter and protection to the demised premises
from the Estate and any building thereon
PART III
Exceptions and reservations
Excepting and reserving unto the Landlord and to all other persons entitled
thereto or authorized by the Landlord:
(i) The free and uninterrupted passage of and the running of water
soil gas electricity and telephone telegraphic and other
communication systems and all other services through and along
all sewers drains channels watercourses gas water and other
pipes conduits ducts cables wires and all other conducting
media and appliances which are now laid in or installed in
through or under the demised premises
(ii) The right at all times and from time to time upon reasonable
written notice (save in case of emergency) to enter into and
remain upon the demised premises and all parts thereof with
workmen and others and with all necessary appliances and
materials for the purpose of any operation or thing connected
with inspecting repairing maintaining cleansing or examining
the adjoining or neighboring land and any buildings erected
thereon and all parts thereof or restoring the support shelter
or protection thereto and the said sewers drains channels
watercourses gas water and other pipes conduits ducts cables
wires and all other conducting media and appliances serving
the same and to make all connections and disconnections which
may be necessary in relation thereto the person or persons
exercising such right making good all damage thereby
occasioned and causing as little disturbance as possible to
the Tenant and any lawful sub-tenant and compensating the
Tenant and any such sub-tenant for any loss suffered by the
Tenant as a result of the exercise of any such right
(iii) The right to execute or permit or suffer the execution of
works or alterations on any lands adjoining or near the
demised premises or the demolition rebuilding alteration or
extension of any buildings erected on such lands and to use or
deal with such lands and buildings in such manner as the
Landlord may in its absolute discretion think fit
-31-
<PAGE> 32
notwithstanding that by so doing the access of light or air to
the demised premises may thereby be diminished or interfered
with or prejudicially affected
(iv) All other rights easements quasi-easements rights in the
nature of easements privileges and liabilities to which the
premises are or may become
(v) The right of support shelter and protection now or hereafter
belonging to or enjoyed by all adjacent or neighboring land or
buildings an interest wherein in possession or reversion is at
any time during the term hereby granted vested in the Landlord
THE SECOND SCHEDULE
The Service Charges
Part I
Heads of Expenditure
1. Cleaning lighting repairing decorating maintaining altering or
renewing any parts of the Estate (other than those which fall within
the liabilities of tenant) and complying with statutory requirements
2. Providing maintaining repairing replacing and insuring (save insofar
as insured under other provisions hereof) electrical and mechanical
equipment and other plant machinery and services on the Estate
3. Employing all necessary staff including independent contractors
employed for the purposes of the Estate and making all payments in
relation to such employment (including but without limiting the
generality of such provision the payment of the statutory and such
other insurance health pension welfare and other payments
contributions and premiums that the Landlord may at its absolute
discretion deem desirable or necessary and the provision of uniforms
working clothes tools appliances cleaning and other materials bins
receptacles and other equipment for the proper performance of their
duties)
4. Paying all charges assessments impositions and other outgoings
payable by the Landlord in respect of all parts of the Estate not
exclusively occupied by a Tenant (including residential accommodation
that may at the Landlord's discretion be provided for a caretaker but
not including parts of the Estate intended to be let but not yet let
to any lessee)
-32-
<PAGE> 33
5. Insuring and keeping insured the Estate and all the said
appurtenances thereof (in addition to the insurance of the demised
premises and all other parts of the Estate which are let or are
intended to be let) and in addition insuring against third party
employer's and public liability and such further or other risks
including three years' loss of rent and architects' and surveyors'
fees and demolition clearance and other expenses consequent upon or
incidental to rebuilding or reinstatement that the Landlord may deem
desirable or expedient
6. The reasonable costs incurred in managing the Estate by the
Landlord's agents
7. Taking all reasonable steps by the Landlord for complying with making
representations against or otherwise contesting the incidence of the
provisions of any legislation or orders or statutory requirements
thereunder concerning town planning public health highways streets
drainage or other matters relating or alleged to relate to the Estate
for which the Tenant is not directly liable hereunder
8. Providing all other services facilities or amenities for the Estate
which the Landlord deems desirable or expedient (excluding Landlords
Agents fees for collecting rents on the Estate)
Part II
Ascertainment of service charge
1. The amount of the service charges shall be ascertained annually as
soon after the end of the Landlord's financial year as may be
practicable and shall relate to such year in manner hereinafter
mentioned
2. The expression "Landlord's financial year" shall mean the period from
the First day of January to the thirty first day of December or such
other annual period as the Landlord may in its discretion from time
to time determine as being that in respect of which the accounts of
the Landlord either generally or relating to the Estate shall be made
up
3. The expenses and outgoings and other expenditure incurred by the
Landlord to be included in the service charges shall be deemed to
include not only those expenses outgoings and other expenditure
hereinbefore described which have been actually disbursed incurred or
made by the Landlord during the year in question but also such
reasonable parts of all such expenses outgoings and other expenditure
hereinbefore described which are of a
-33-
<PAGE> 34
periodically recurring nature (whether recurring by regular or
irregular periods) whenever disbursed incurred or made and whether
prior to the commencement of the said term or otherwise including a
sum or sums by way of reasonable provision for anticipated
expenditure thereof as the Landlord or its Agents may in its or their
discretion allocate to the year in question as being fair and
reasonable in the circumstances
4. On the days hereinbefore specified for the payment of rent during the
said term the Tenant shall pay to the Landlord such sums (hereinafter
referred to as "advance payments") in advance and on account of the
service charges for the then current Landlord's financial year as the
Landlord or its Agents shall from time to time specify at its or
their discretion to be fair and reasonable
5. As soon as practicable after the end of each Landlord's financial
year the Landlord shall furnish to the Tenant an account of the
service charges payable by the Tenant for that year due credit being
given therein for the advance payment made by the Tenant in respect
of the said year and upon the furnishing of such account there shall
be paid by the Tenant to the Landlord the service charge or any
balance found payable or there shall be allowed by the Landlord to
the Tenant any amount (insofar as it arises in respect of the current
expenditure as opposed to anticipated expenditure) which may have
been overpaid by the Tenant by way of advance payment as the case may
require PROVIDED ALWAYS that the provisions of this part of this
Schedule shall continue to apply notwithstanding the expiration or
sooner determination of the tenancy hereby granted but only in
respect of the period down to such expiration or sooner determination
as aforesaid
6. A certificate given by the Landlords' Surveyors as to the division of
any expenses and outgoings between the Centre and the Car Park shall
be final and binding upon the Landlord and the Tenant save in the
event of manifest error
(THE COMMON SEAL of
(QUEENSGATE
(DEVELOPMENTS LIMITED was
(hereunto affixed in the
(presence of:
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<PAGE> 35
UNIT 4 BRACKNELL BUSINESS CENTRE DOWNHILL ROAD.
BRACKNELL, BERKSHIRE
MEMORANDUM that BENTON NOMINEES LIMITED the Landlord of the above premises and
THE BURTON GROUP PLC the Tenant have agreed that the initial rent reserved
under the Lease related to the above premises dated 1st August 1984 made
between Queensgate Developments Limited and The Burton Group plc has been
reviewed on and from 23rd July 1989 and that the yearly rent payable from that
date until 23rd July 1994 shall be SIXTY FIVE THOUSAND FIVE HUNDRED POUNDS
(L.65,500) per annum
DATED this _________ day of ______________ 1989.
/s/
________________________________________________
For and on behalf of Benton Nominees Limited
/s/
________________________________________________
For and on behalf of The Burton Group plc
-35-
<PAGE> 36
DATED 1990
- --------------------------------------------------------------------------------
BENTON NOMINEES LIMITED (1)
THE BURTON GROUP PLC (2)
LANDMARK COMMUNICATIONS SERVICES LIMITED (3)
LANDMARK COMMUNICATIONS SERVICES INC. (4)
------------------------------
COUNTERPART/
L I C E N C E
to Assign the Lease of
Unit 4 Bracknell Business Centre,
Downmill Road, Bracknell, Berkshire.
------------------------------
Malkin Janners
Inigo House
29 Bedford Street
London WC2E 9RT
Ref : 11/RF/RS/BEN/0303M
-36-
<PAGE> 37
T H I S L I C E N C E is made the _______________ day of _________ One
thousand nine hundred and ninety B E T W E E N the following parties:
1.1 BENTON NOMINEES LIMITED whose registered office is at Hadrian House
61-65 Victoria Road Farnborough Hampshire G14 7PA ("the Landlord").
1.2 THE BURTON GROUP PUBLIC LIMITED COMPANY whose registered office is at
214 Oxford Street London WIN 4DF ("the Tenant").
1.3 LANDMARK COMMUNICATIONS SERVICES LIMITED whose registered office is
at 32-36 Bath Road, Hounslow, TW3 3EF ("the Assignee").
1.4 LANDMARK COMMUNICATIONS SERVICES INC. of 901 N.Batavia Avenue Batavia
Illinois ("the Guarantor").
2. This License is supplemental to the Lease ("the Lease") details of
which appear in the Schedule hereto.
3. Subject as hereinafter set out the Tenant is hereby permitted to
assign the Lease to the Assignee PROVIDED THAT:
3.1 Such assignment takes place within three months from the date hereof.
3.2 Any provisions in the Lease as to registration of the assignment are
strictly complied with.
3.3 The Tenant discharges all payments of rent and other sums due under
the Lease prior to completion of such assignment.
3.4 The Assignee enters into a Rent Deposit Agreement with the Landlord
on the date hereof.
4. The Assignee HEREBY COVENANTS with the Landlord that as from the date
when the estate and interest in the premises to which this License relates
shall be assigned to it pursuant to the License herein contained then during
the unexpired residue of the term of the interest being assigned the Assignee
and its successors in title will be liable on the covenants and conditions on
the part of the lessee contained in the Lease in respect to any breaches
thereof whether occurring before or after the date of such assignment and the
Assignee and its successors in title will perform and observe the covenants and
conditions on the part of the lessee contained in the Lease and any variation
contained in this License and will pay the yearly rents reserved by the Lease
-37-
<PAGE> 38
5. The Guarantor in consideration of the License hereinbefore contained
having been made at his request on behalf of the Assignee HEREBY COVENANTS and
GUARANTEES to the Landlord as follows:
5.1 That the Assignee will at all times so long as the term granted by
the Lease is vested in it duly pay the rents reserved in the manner
and at the respective times appointed by the Lease for the payment
thereof and duly observe and perform all the tenants covenants
therein contained and implied and the conditions therein AND that the
Guarantor will at all times hereafter pay and make good to the
Landlord on demand all losses costs damages and expenses occasioned
to it by the non-payment of the said rents or any part thereof or
breach non-observance or nonperformance of any of the said covenants
and conditions AND FURTHER that any neglect or forbearance on the
part of the Landlord in enforcing or giving time to the Assignee for
payment of the said rents or any part thereof or the observance or
performance of any of the said covenants and conditions shall not in
any way release the Guarantor in respect of its liability under the
covenant or guarantee on its part herein contained
5.2 In the event of the Assignee during the term granted by the Lease
entering into liquidation (other than voluntary liquidation for the
purposes of reconstruction or amalgamation) and the liquidator
disclaiming the Lease the Guarantor will if required by the Landlord
accept from the Landlord a lease of the demised premises for a term
equal in duration to the residue remaining unexpired of the term
granted by the Lease at the time of the grant of the lease to the
Guarantor such lease to contain the like lessees covenants
respectively and the like proviso and conditions in all respects as
are contained in the Lease PROVIDED ALWAYS that the Landlord shall
within the period of three months after such disclaimer serve upon
the Guarantor notice in writing so to do
6. IT IS HEREBY AGREED and DECLARED that nothing herein contained shall
be deemed to authorize any other or further assignment of the premises
comprised in the Lease or any part thereof except as expressly herein
authorized
7. The Laws of England shall apply to this License.
IN WITNESS whereof this deed was executed by the parties hereto the day and
year first before written
-38-
<PAGE> 39
BENTON NOMINEES LIMITED
/s/
THE BURTON GROUP PUBLIC LIMITED COMPANY
/s/
LANDMARK COMMUNICATIONS SERVICES LIMITED
/s/
LANDMARK COMMUNICATIONS SERVICES INC.
/s/
-39-
<PAGE> 1
EXHIBIT 10.14
DATED: MARCH 22, 1985
BENTON NOMINEES LIMITED
-TO-
ROBERT DAVID GRANT AND SUSAN MARGARET GRANT
TRADING AS GRANTS ELECTRICAL SUPPLIES
-----------------------------------------
L E A S E
-OF-
UNIT 5 BRACKNELL BUSINESS CENTRE DOWNMILL
ROAD BRACKNELL BERKSHIRE
-----------------------------------------
<PAGE> 2
UNIT 5
SCHEDULE OF LANDLORDS FIXTURES AND FITTINGS
Lavatories
- ----------
Gents: 1 No. Urinal and cystern with cistermiser
1 No. W.C. and partition
2 No. Wash-hand basin
1 No. Hot water heater
2 No. Bulkhead lights
Vinyl flooring
Ladies: 1 No. W.C. and partition
1 No. Wash-hand basin
1 No. Hot water heater
1 No. Sanitary towel disposal unit
2 No. Bulkhead lights
Vinyl flooring
Warehouse
- ---------
Aluminum entrance mat
-2-
<PAGE> 3
2 No. Door closers to lavatories
6 No. Suspended Sodium High Bay lights
1 No. Drinking Water Fountain
1 No. Panic bolts to emergency doors
Water tanks
2 No. Fire Exit Signs
External
- --------
1 No. Light above shutter door
Plastic Unit number
-3-
<PAGE> 4
H. M. LAND REGISTRY
LAND REGISTRATION ACTS 1925-1971
LEASE OF PART
County and District : BERKSHIRE
: BRACKNELL
Title Number :
Property : Unit 5
Bracknell Business
Centre
Downmill Road Bracknell
THIS LEASE made the 22nd day of March One thousand nine hundred and eighty five
BETWEEN: -
(1) BENTON NOMINEES LIMITED whose registered office is at Benton House
135 Sandyford Road Newcastle-Upon-Tyne NE21 1GE (the "Landlord") and
(2) ROBERT DAVID GRANT and SUSAN MARGARET GRANT of 915 London Road
Loudwater High Wycombe Bucks HP10 9FT trading as GRANTS ELECTRICAL
SUPPLIES of Southernwood Windsor Lane Great Kingshill Bucks (the
"Tenant") W I T N E S S E S as follows:-
DEFINITIONS
1. IN this Lease unless the context otherwise requires:-
-4-
<PAGE> 5
(1) "the Landlord" means the party of the first
part and shall include the
estate owner for the time
being of the reversion
immediately expectant on the
determination of the term
hereby granted
(2) "the Tenant" means the party of the
second part and includes the
successors in title and the
permitted assigns of that
party
(3) "the demised premises" means the land and premises
described in Part I of the
First Schedule hereto and
each and every part thereof
together with the
appurtenances thereto
belonging and any and all
additions alterations and
improvements thereto and the
Landlord's fixtures and
fittings as the same are at
the date hereof set out in
the Schedule annexed hereto.
(4) "the Car Park" means the car park shown and
edged brown upon the plan
annexed hereto
(5) "the Centre" means the Landlord's
Business Centre of which the
demised premises form part as
the same is for the purposes
of identification edged green
(excluding first that part
edged and hatched green and
secondly the Car Park) on the
plan annexed hereto
(6) "the Estate" means the Centre together
with the Car Park
(7) "the initial rent" means the yearly rent
reserved by Clause 2(1)(a)
hereof
(8) "the insured risks" means risks in respect of
loss or damage by fire
lightning earthquake
explosion aircraft (other
than hostile
-5-
<PAGE> 6
aircraft) and other aerial
devices or articles dropped
therefrom, riot and civil
commotion and malicious damage
storm or tempest bursting or
overflowing of water tanks,
apparatus, or pipes, flood,
impact by road vehicles, the
cost of shoring up demolition
and site clearance,
Architect's Surveyors and
other professional fees and
such other risks or insurance
as may from time to time be
reasonably required by the
Landlord
(9) "the service charges" means 5.7 per centum of the
expenses and outgoings
together with VAT (if any)
thereon (save to the extent
that the Landlord can recover
the same) incurred by the
Landlord under the heads of
expenditure set out in Part I
of the Second Schedule hereto
in so far as the same relate
to the Centre
-6-
<PAGE> 7
(10) "Planning Acts" means the Town and County
Planning Acts 1971 and 1972
and any Act or Acts for the
time being in force amending
or replacing the same or of a
similar nature and includes
any order, regulation,
direction or plan made or
issued thereunder or deriving
validity therefrom
(11) "Planning means any permission,
Permission" consent or approval given
or deemed to be given under
the Planning Acts
(12) "development" bears the same meaning as
defined in the Planning Acts
(13) "the prescribed means three per centum per
above the annum rate current from
base rate" time to time of such of the
London Clearing Banks as the
Landlord shall from time to
time stipulate
2. In consideration of the rents hereby reserved and of the covenants on
the part of the Tenant hereinafter contained the Landlord HEREBY
GRANTS and DEMISES unto the Tenant the demised premises TOGETHER WITH
the
-7-
<PAGE> 8
rights mentioned in Part II of the First Schedule hereto but EXCEPT
AND RESERVING as mentioned in Part III of the First Schedule hereto TO
HOLD the same except and reserved as aforesaid unto the Tenant for a
term of Twenty-five years from the Twenty-fifth day of December, One
thousand nine hundred and eighty four YIELDING AND PAYING therefor
unto the Landlord
(1) yearly during the said term and so in proportion for any less
period than a year
(a) Until the Twenty fourth day of December One thousand
nine hundred and eighty nine the yearly rent of
Twelve thousand six hundred and seventy five pounds
(L.12,675.00)
(b) During the remaining years of the said term the
initial rent or such increased rent as may be
payable in accordance with the provisions of Clause
3 hereof
All such rents to be paid by equal quarterly payments in
advance on the Twenty fifth day of March the Twenty fourth day
of June the Twenty ninth day of September and the Twenty fifth
day of December in every year the first payment of rent
hereunder (being the proportionate payment in respect of the
period commencing on the date hereof and ending on the [23rd]
day of [June] One thousand nine hundred and eighty five) to be
made on the execution of these presents
-8-
<PAGE> 9
(2) By way of additional rent from time to time on demand without
any deduction or abatement whatsoever
(a) an amount equal to the premium paid from time to
time by the Landlord for insuring or causing to be
insured in a sum not less than the full
reinstatement value (to be determined from time to
time by the Landlord) the demised premises and all
fixtures and fittings of an insurable nature (other
than those which any tenant is entitled to remove)
against loss or damage by the insured risks
(b) an amount equal to the premium paid from time to
time by the Landlord for insuring against three
years loss of the rent and service charge from time
to time payable under these presents
RENT REVIEW
3. (1) IN this Clause unless the context otherwise requires:-
(a) "Review Date" means the Twenty fifth day
of December in the years
1989, 1994, 1999 and 2004
(b) "current market rent" means the full market rent
without any deduction
whatsoever at which the
demised premises might
reasonably be expected to be
let as a whole at the Review
Date in the open market
without a fine or premium and
with vacant possession by a
willing landlord to a willing
tenant on a Lease for a term
of years equivalent to the
remainder of the term granted
-9-
<PAGE> 10
by this Lease at such
Review Date or for a term of
ten years whichever is the
greater on the same terms and
conditions in all other
respects as this present
Lease and upon the
supposition (if not a fact)
that the Tenant has complied
with all the obligations on
its part herein imposed and
that the demised premises are
fit for immediate occupation
and use and that in case the
demised premises have been
damaged or destroyed they
have been fully restored
there being disregarded:
(i) Any effect on rent of
the fact that the
Tenant or its
predecessors in title
or any permitted
undertenant has or have
been in occupation of
the demised premises
(i) Any effect on rent of
any improvement of
the demised premises
or any part thereof
carried out by the
Tenant or its
predecessors in title
or any permitted
undertenant at its or
their own expense
otherwise than in
pursuance of any
obligation to the
Landlord
(iii) Any goodwill attached
to the demised premises
or any part thereof by
reason of any trade or
business carried on
-10-
<PAGE> 11
therein by the Tenant
or its predecessors in
title or any permitted
undertenant
(2) The initial rent or other the rent payable by the Tenant
hereunder shall be subject to increase in accordance with the
following provisions of this Clause
(3) The Landlord shall be entitled by notice in writing given to
the Tenant not earlier than six months before and not later
than six months after a Review Date to call for a review of
the initial rent or other the rent for the time being payable
by the Tenant hereunder at the Review Date and if upon any
such review it shall be ascertained or determined that the
current market rent of the demised premises at the Review Date
is greater than the initial rent or other the yearly rent
payable hereunder immediately prior to such Review Date than
as from that Review Date the yearly rent payable hereunder
shall be increased to the current market rent so ascertained
PROVIDED THAT in no circumstances shall the rent payable
hereunder following such review be less than the yearly rent
payable by the Tenant immediately prior to the Review Date
PROVIDED FURTHER THAT if on any Review Date the Landlord shall
be obliged legally or otherwise to comply with any acts of
parliament order or direction dealing with the control of rent
or which shall restrict or modify the Landlord's right to
reserve or receive any
-11-
<PAGE> 12
increase in rent in accordance with the terms and provisions
of this clause then notwithstanding the provisions of any Acts
of Parliament order or direction aforesaid the Landlord and
the Tenant shall review the rent payable hereunder from the
relevant Review Date in accordance with the provisions of this
present clause 3 there being disregarded for the purposes of
such review of rent in addition to the matters referred to in
paragraphs (i), (ii) and (iii) of subclause (b) of paragraph
(1) of this present clause 3 any effect on rent of any law for
the time being in force which imposes a restraint on receiving
an increase in the rent of the demised premises and any
increase in the rent payable hereunder by virtue of any such
review shall commence to be payable upon any relaxation,
removal or modification of such enactment, order or direction
the first payment to be in respect of the period beginning on
the day after any relaxation, removal or modification of such
enactment, order or direction and ending on the day preceding
the quarter day next following any relaxation removal or
modification as aforesaid
(4) The review as aforesaid shall in the first instance be made by
the Landlord and the Tenant or their respective Surveyors in
collaboration but if no agreement as to the amount of the
current market rent at the Review Date shall have been reached
between the parties hereto or
-12-
<PAGE> 13
their Surveyors by whichever is the later of three months
after the date of the Landlord's notice calling for such
review or the relevant Review Date then the question as to the
amount of the current market rent of the demised premises at
the Review Date shall be referred to a single arbitrator to be
appointed in default of agreement between the parties on the
application of either party by the President for the time
being of the Royal Institution of Chartered Surveyors and this
sub-clause shall be deemed to be a submission to arbitration
in accordance with the Arbitration Acts 1950 to 1979 or any
statutory modification or re-enactment thereof for the time
being in force. The decision of the arbitrator shall be final
and binding on the Landlord and the Tenant. The liability for
the costs of such arbitrator shall be decided by the
arbitrator
(5) If upon the review the amount of any increased rent shall not
be ascertained or determined prior to the Review Date the
Tenant shall continue to pay at the yearly rate payable
immediately prior to the Review Date until the quarter day
next following the ascertainment or determination of any
increased rent whereupon there shall be due as a debt payable
by the Tenant to the Landlord on demand a sum equal to the
amount by which the increased yearly rent shall exceed the
yearly rent previously payable apportioned on a daily basis
from the Review
-13-
<PAGE> 14
Date TOGETHER WITH interest thereon at the rate of three per
centum per annum below the prescribed rate from whichever
shall be the later of (i) the relevant Review Date and (ii)
the date on which the Landlord gives notice pursuant to the
provisions of clause 3(3) hereof until the date of payment
thereof provided that for the _______ of any review of rent
payable hereunder pursuant to the provisions of the second
provision ______ 3(3) hereof no such interest shall be
payable.
(6) If upon _______ as aforesaid it shall be agreed or determined
that the rent previously payable hereunder shall be ______ the
Landlord and the Tenant shall forthwith ______ complete and
sign a written memorandum recording the increased rent
thenceforth payable
TENANTS COVENANTS
4. THE Tenant for _____ and its assigns and to the intent that the
obligations _____ continue throughout the term hereby granted HEREBY
COVENANTS with the Landlord as follows:-
(1) (a) To pay _________ yearly rent at the time and in
manner aforesaid without any deduction or abatement
without any deduction or abatement whatsoever
(except in any case where the Tenant _____ obliged
by statutory authority to make any _______)
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<PAGE> 15
(b) That if any sums payable by the Tenant to the
Landlord under this Lease shall not be paid within
fourteen days after the same shall have become due
or have been demanded (as the case may be) then to
pay interest thereon at the prescribed rate
calculated on a day to day basis from the date of
the same being due or demanded (as the case may be)
down to the date of payment and the aggregate amount
for the time being so payable shall at the option of
the Landlord be recoverable by action or as rent in
arrear
(2) To pay the service charges at the times and in the manner
provided in Part II of the Second Schedule hereto
(3) To pay and discharge all general and water rates, taxes,
duties, charges, assessments, impositions and outgoings
whether parliamentary, parochial, local or of any other
description which are now or may at any time hereafter be
taxed, charged or imposed upon or payable in respect of the
demised premises or on the owner or occupier in respect
thereof and to pay all proper proportion thereof (such
proportions being the same as contained in the definition
"Service Charges") in respect of any parts of the Estate which
the Tenant may use or be entitled to use although not included
in the demised premises other than
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<PAGE> 16
(a) any tax or levy arising in respect of the grant of
this Lease and
(b) any tax in respect of any dealings with the
reversion expectant on the term hereby granted
(4) To keep the demised premises including the water ventilation
and sanitary and heating apparatus (if any) and the walls,
fences, gates, roads, sewers, drains (exclusively serving the
demised premises) plant and machinery and appurtenances thereof
in good and substantial repair and condition and maintained,
cleansed, and amended in every respect and as and when
necessary to replace all landlord's fixtures and fittings and
appurtenances belonging to the demised premises with others
which are new and of best quality and serve an equivalent
purpose damage by insured risks excepted unless payment of any
monies payable under the Insurance Policies effected by the
Landlord shall be refused by reason of the act, omission or
default of the Tenant or any undertenant or the servants,
agents and licensees of the Tenant or any undertenant
(5) Without prejudice to the generality of subclause (4) hereof:-
(a) as and whenever necessary and as to both the
exterior and the interior of the demised premises in
every fifth year of the said term and also as to
both interior and exterior during the last year of
the said term (but not during any two consecutive
years) to
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<PAGE> 17
have prepared and painted or otherwise decorated or
treated (as the case may be) all surfaces and other
portions, fabrics, and finishes (i) usually painted
with two coats at least of best quality paint or
(ii) otherwise decorated or treated with best
quality materials in a proper and workmanlike manner
and so often as may be necessary to have
professionally treated in accordance with the best
approved manner for preserving and protecting the
same all other parts of the demised premises
requiring treatment for preservation and protection
and as and when necessary to clean make good and
treat with suitable preservative any rough cast
stucco work block panels or walls. All such
painting decoration or other treatments to be
carried out by the Tenant to the reasonable
satisfaction of the Landlord and in accordance with
such reasonable directions in regard thereto as may
from time to time during the term be communicated to
the Tenant by the Landlord or the duly authorized
agent of the Landlord
(b) To carry out such painting, decoration or other
treatment during the last year of the said term in
colors, tints and materials previously approved in
writing by the Landlord (such approval not to be
unreasonably withheld or delayed)
-17-
<PAGE> 18
(c) To replace all glass in the demised premises as and
when the same is broken or damaged with glass of the
same color, tint and specification and in conformity
to the glass fitted in the remainder of the demised
premises
(d) To clean all windows (both externally and
internally) and the window frames and other glass
comprised in the Demised Premises at least once in
every month
(6) At the expiration or sooner determination of the said term
quietly to yield up unto the Landlord the demised premises
(but not with trade and other Tenants fixtures) in such state
and condition as shall in all respects be consistent with a
full and due performance by the Tenant of the covenants
contained in this Lease
(7) At all times during the said term to observe and comply in all
respects with all and any provision requirement and direction
of any and every enactment (which expression in this covenant
includes as well any and every Act of Parliament already or
hereafter to be passed as any and every order, regulation,
by-law or direction already or hereafter to be made or issued
under or in pursuance of any such Act) or which may be at any
time ordered by a factory inspector or any local authority so
far as they relate to or affect the demised premises or any
additions or improvements thereto or the user thereof for the
purpose of any
-18-
<PAGE> 19
manufacture, process, trade of business or the use or
employment therein of any person or persons or any fixtures of
fittings plant machinery or chattels for the time being
affixed thereto or being therein or thereupon or used for the
purposes thereof and to execute all works and provide and
maintain all arrangements which by or under any enactment or
by any government department, local authority, factory
inspector or other public authority or duly authorized office
or court of competent jurisdiction acting under or in
pursuance of any enactment are or may be directed or required
to be executed provided and maintained at any time during the
said term upon or in respect of the demised premises or any
additions or improvements thereto or in respect of any such
user thereof or the use or employment therein of any person or
persons or fixtures machinery plant or chattels as aforesaid
whether by the Landlord or Tenant thereof and to indemnify the
Landlord at all times against all costs charges and expenses
of or incidental to the execution of any works or the
provision or maintenance of any arrangements so directed or
required as aforesaid and not at any time during the said term
knowingly to do or omit or suffer to be done or omitted on or
about the demised premises any act or thing by reason of which
the Landlord may under any enactment incur or have imposed
upon it or become liable to pay
-19-
<PAGE> 20
any penalty, damages, compensation, costs, levy, charges or
expenses PROVIDED ALWAYS that nothing in this Clause contained
shall be construed as giving to the Tenant liberty or license
to act or do anything in any way in contravention of the
provisions herein contained as to the procuration of all
necessary licenses, consents, permissions or approvals
(8) Within seven days of the receipt of the same or such earlier
date as shall be at least ten working days prior to the expiry
of the matter in question to give full particulars to the
landlord of any permission, notice, order, direction or
proposal for a notice order or direction made, given or issued
to the Tenant by any government department local or public
authority or factory inspector under or by virtue of any
statutory powers and if so required by the Landlord to produce
such permission notice, order or direction or proposal for a
notice order or direction to the Landlord AND ALSO without
delay to take all reasonable or necessary steps to comply with
any such notice, order or direction so far as the same falls
to be so dealt with as a Tenant's liability hereunder AND ALSO
at the request of the Landlord to make or join with the
Landlord in making such objections or representations against
or in respect of any such notice, order, proposal or direction
as aforesaid as the Landlord acting reasonably shall deem
expedient
-20-
<PAGE> 21
(9) (a) At all times during the said term to comply in all
respects with the provisions and requirements of the
Planning Acts and of all planning permissions so far
as the same respectively relate to or affect the
demised premises or any part thereof or any
operations works acts or things already or hereafter
to be carried out, executed, done or omitted thereon
or the use thereof for any purpose and
(b) During the said term so often as occasion shall
require at the expense in all respects of the Tenant
to obtain all such planning permissions and serve
all such notices as may be required for the carrying
out of any operations by the Tenant on the demised
premises or the institution or continuance thereon
of any use thereof which may constitute development
but so that no application for planning permission
shall be made without the previous written consent
of the Landlord and
(c) Subject only to any statutory direction to the
contrary to pay and satisfy any charge or levy that
may now or hereafter be imposed under the Planning
Acts in respect of the carrying out or maintenance
of any such operations or the institution or
continuance of any such use as aforesaid and further
to indemnify the Landlord against any liability of
the Landlord to
-21-
<PAGE> 22
pay Development Land Tax or other similar payment or
charge arising from any such operation or use as
aforesaid or any change or changes thereto
(d) Notwithstanding any consent which may be granted by
the Landlord under this Lease not to carry out or
make any alteration or addition to the demised
premises or any change of use thereof (being an
alteration or addition or change of use which is
prohibited by or for which the Landlord's consent is
required to be obtained under this Lease and for
which a planning permission needs to be obtained)
before all such notices and all such necessary
planning permissions have been produced to the
Landlord and in the case of a Planning Permission
approved by the Landlord in writing as satisfactory.
But so that the Landlord may refuse so to give its
approval to any such notice or planning permission
on the ground that any condition contained therein
or omitted therefrom or the period thereof in the
opinion of its Surveyor would be or be likely to be
prejudicial to its interest in the demised premises
or to other neighboring or adjacent premises
belonging to the Landlord whether during the said
term or following the determination or expiration
thereof and
-22-
<PAGE> 23
(e) Unless the Landlord shall otherwise direct to carry
out and complete before the expiration or sooner
determination of the said term (i) any works
stipulated to be carried out to the demised premises
by a date subsequent to such expiration or sooner
determination as a condition of any planning
permission granted to the Tenant before such
expiration or determination and (ii) any development
begun by or on behalf of the Tenant upon the demised
premises in respect of which the Landlord shall or
may be or become liable for any charge or levy under
the Planning Acts and
(f) If and when called upon so to do to produce the
Landlord or the Landlord's Surveyor all such plans,
documents and other evidence as the Landlord may
reasonably require in order to be satisfied that the
provisions of this covenant have been complied with
in all respects
(10) To permit the Landlord and its surveyors or agents with or
without workmen and others at all reasonable hours during the
daytime on reasonable prior written notice being given (except
in emergency) to enter the demised premises or any part
thereof to ensure that nothing has been done therein that
constitutes a breach of any of the covenants herein contained
and also to view and examine the state and condition
-23-
<PAGE> 24
thereof or to take inventories of the fixtures and fittings
therein or for the purpose of executing any improvement they
may undertake to execute or of making any inspection which may
be required for the purposes of the Landlord and Tenant Acts
of 1927 and 1954 or any other Act for the time being affecting
the demised premises
(11) to forthwith commence and thereafter diligently proceed to
repair and make good all breaches of covenant defects and
wants of reparation for which the Tenant may be liable under
the covenants herein contained of which notice shall have been
given by the Landlord to the Tenant within two calendar months
after the giving of such notice or sooner if requisite
(12) That if the Tenant shall at any time make default in the
performance of any of the covenants herein contained relating
to the repair, decoration, cleansing or condition of the
demised premises or any part thereof of which notice has been
given as aforesaid it shall be lawful for the Landlord or its
Agents and workmen (but without prejudice to the right to
re-entry hereinafter contained) to enter upon the demised
premises or any part thereof and at the expense of the Tenant
to carry out such repairs, cleansing or decoration as may be
necessary in accordance with the covenants and provisions
herein contained and
-24-
<PAGE> 25
the costs and expenses thereof (including any fees) shall be
paid by the Tenant to the Landlord on demand
(13) To pay to the Landlord all costs, charges and expenses which
may be incurred by the Landlord in abating a nuisance and
executing all such works as may be necessary for abating a
nuisance in obedience to a notice served by a local or public
authority on the Landlord or the Tenant in respect of the
demised premises
(14) To permit the Landlord or its Agents at any time within six
calendar months next before the expiration or sooner
determination of the said term to enter upon the demised
premises and to fix and retain without interference upon any
suitable part or parts thereof a notice board for reletting or
selling the same and that the Tenant will not remove or
obscure the same and at all times during the said term to
permit all persons by order in writing of the Landlord or its
agents to view the demised premises at all convenient hours in
the daytime without interruption
(15) To pay to the Landlord all costs, charges and expenses
(including reasonable legal costs and fees payable to a
Surveyor or Architect) which may be incurred or payable by the
Landlord in or in contemplation of any proceedings relating to
the demised premises under Sections 146 and 147 of the Law of
Property Act of 1925 (whether
-25-
<PAGE> 26
or not any right of re-entry or forfeiture has been waived by
the Landlord or the Tenant has been relieved under the
provisions of the said Act) or in the preparation and service
of a Schedule of Dilapidations for which the Tenant is liable
before or after the expiry of the term or of any application
to the Landlord for any consent pursuant to the covenants
herein contained and to keep the Landlord fully and
effectually indemnified against all costs expenses claims and
demands whatsoever in respect of the said applications,
consents and proceedings
(16) Not to keep, place or store or permit or suffer to be kept,
placed or stored in or upon or about the demised premises any
materials of a dangerous, combustible or explosive or
corrosive nature or the keeping or storing of which may
contravene any statute, order or local regulation or by-law or
constitute a nuisance to the occupiers of neighboring or
adjoining premises
(17) (a) Not to do or omit or suffer to be done or omitted
any act, matter, or thing whatsoever the doing or
omission of which would make void or voidable any
policy of insurance on the demised premises or on
the Landlord's fixtures and fittings therein or any
adjoining or contiguous property belonging to the
Landlord or cause the premiums payable in respect of
any insurance effected
-26-
<PAGE> 27
in relation to the demised premises or any adjoining
or contiguous premises to be increased beyond the
normal rate
(b) In the event of the demised premises or any part
thereof being destroyed or damaged by any of the
insured risks to give immediate notice thereof to
the Landlord
(c) To observe all reasonable requirements of the
Landlords' insurers and to indemnify the Landlord
against any breach of such requirements
(d) In the event of the demised premises or any part
thereof being destroyed or damaged by any of the
insured risks and the insurance money under any
insurance against the same effected thereon by the
Landlord being wholly or partly irrecoverable by
reason solely or in part of any act neglect or
default of the Tenant or any Undertenant or servants
agents or Licensees of the Tenant or any Undertenant
then and in every such case the Tenant will
forthwith (in addition to the said rent) pay to the
Landlord the whole or (as the case may require) a
fair proportion of the cost of completely rebuilding
and reinstating the same
(18) Not at any time during the said term to make any alteration or
addition to the electrical installation of the demised
premises save in accordance with the terms and conditions laid
down by the Institution
-27-
<PAGE> 28
of Electrical Engineers and the Regulations of the Electricity
Supply Authority and (in the case of a substantial alteration
or addition) with the Landlord's previous consent in writing
(such consent not to be unreasonably withheld or delayed)
(19) Not to cut, maim, alter or remove any or any part of the
principal structure beams columns roofs walls or other
structural parts of the demised premises or to make any
alterations in the plan or elevation of the demised premises
or any part thereof or affect alter or modify the external
appearance thereof or make any structural erection addition or
alterations to the demised premises either externally or
internally or to carry out any development on or to the
demised premises or any part thereof provided that nothing in
this sub-clause shall preclude
(i) internal alterations of a structural nature with the
previous consent in writing of the Landlord (such
consent not to be unreasonably withheld or delayed)
and
(ii) internal alterations of a non-structural nature
where full details including plans thereof have
first been provided to the Landlord in writing
on the condition that at the expiration or sooner
determination of the term of the lease the demised premises
shall be restored by the Tenant
-28-
<PAGE> 29
to their original state and condition should the Landlord then
require it
(20) Not to use the demised premises or any part thereof or permit
the same to be used except for a purpose within Use Class III
and/or Use Class IV and/or Use Class X of the Town and Country
Planning (Use Classes) Order 1972 with ancillary offices and
car parking subject however to the Tenant obtaining all
necessary planning and other consents and licenses for such
use AND in particular (but without derogating from the
generality of the foregoing) not at any time to use the
demised premises or any part thereof or allow the same to be
used as a residence or sleeping place for any person or
persons nor for any noisy noxious or offensive trade or
business nor for the purpose of any unlawful betting
transaction or unlawful gaming within the meaning of the
Gaming Acts (which expression shall for the purposes of this
sub-clause mean the Betting Gaming and Lotteries Act 1963 and
Gaming Act 1968 the Betting Gaming & Lotteries (Amendment) Act
1971 and the Betting and Gaming Duties Act 1972 or any
statutory modification or re-enactment thereof for the time
being in force and any regulations or orders made or having
effect thereunder) and not to make or permit or suffer to be
made any application for a betting office
-29-
<PAGE> 30
license or a licensed registration under the Gaming Acts in
respect of the demised premises or any part thereof
(21) Not to do or permit or suffer to be done on the demised
premises or any part thereof anything which shall or
may be or become or cause annoyance nuisance damage
disturbance injury or danger to the Landlord or the owners
lessees or occupiers of the premises in the neighborhood and
to keep the Landlord fully and effectually indemnified
against all actions proceedings damages costs expenses claims
and demands whatsoever arising out of or in consequence of any
breach or non-observance of this covenant
(22) Not to sell goods by auction or permit or suffer any sale by
auction to be held within or upon the demised premises or any
part thereof
(23) To do all such things as the Landlord may reasonably require
or deem proper for preventing any encroachment or easement
being made or acquired in over or against the demised premises
(24) At all times during the said term to comply with all
requirements from time to time of the appropriate authority in
relation to means of escape from the demised premises in case
of fire and at the expense of the Tenant to keep the demised
premises sufficiently supplied and equipped with fire fighting
and extinguishing apparatus and appliances and suitable in all
respects to the type of user of or business
-30-
<PAGE> 31
manufacture process or trade carried on upon the demised
premises which shall be open to the inspection and maintained
to the reasonable satisfaction of the Landlord (so far as not
opposed to the legal obligation of the Tenant) and also not to
obstruct the access to or means of working such apparatus and
appliances by their operations at or connected with the
demised premises
(25) (a) Not to assign underlet or part with the possession
of part only of the demised premises
(b) Not to assign or underlet the whole of the demised
premises unless:-
(i) In the case of an underletting that no fine
or premium is taken and the rent reserved by
the underlease is the full market rent which
can reasonably be obtained without taking
any fine or premium and is subject to review
(in an upwards direction only) at least as
frequently as the rent under this Lease is
liable to be reviewed and the underlease
contains an absolute covenant prohibiting
any assignment
-31-
<PAGE> 32
or underletting of part of the premises
thereby demised or any assignment of the
whole of the premises thereby demised
without the prior written consent of the
Landlord ( such consent not to be
unreasonably withheld or delayed)
(ii) In the case of an assignment any intended
assignee has first by deed covenanted
directly with the Landlord that during the
residue of the term then subsisting the
assignee will pay the rent reserved by and
will observe and perform the covenants and
conditions contained herein including a
covenant not to further assign the demised
premises without such consent as hereinafter
provided and further upon the Landlord's
reasonable request in that behalf that such
person persons or corporation as
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<PAGE> 33
the Landlord shall so reasonably require
having regard to the financial status of the
intended assignee and other relevant
circumstances shall act as guarantors for
such assignee and shall covenant (jointly
and severally in the case of two or more
persons ) with the Landlord that during the
residue of the term then subsisting the rent
for the time being hereinbefore reserved
will be paid and the covenants on the part
of the Tenant contained herein will be
performed and observed and will indemnify
and keep the Landlord indemnified from and
against all actions proceedings costs claims
and demands arising by reason of the
nonpayment of rent or the failure to observe
the Tenant's covenants as aforesaid and such
covenant shall also provide that any
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<PAGE> 34
neglect or forbearance of the Landlord in
endeavoring to obtain payment of the rent or
any delay to take any steps to enforce
performance by such assignee of the said
covenants and any time which may be given by
the Landlord to the said assignee or any
variation in the terms of these presents
agreed between the Landlord and the assignee
or the transfer of the reversion expectant
upon the term hereby granted or any part
thereof or the assignment of this Lease or
the release of any of the guarantors (if
more than one) from liability or any other
act omission matter or thing whatever
whereby (but for this provision) the
guarantors would be exonerated either wholly
or in part from the guarantee other than a
release under seal given by the
-34-
<PAGE> 35
Landlord shall not release or in any way
lessen or affect the liability of the
guarantors and shall further provide that
should the assignee be a company and go into
liquidation and the liquidator disclaim this
Lease or if the said company should be wound
up or cease to exist then the guarantors
will should the Landlord so require accept a
new lease of the demised premises such new
lease to commence as from the date of such
disclaimer or (as the case may be) such
winding-up or ceasing to exist and to be for
the residue then unexpired of the term and
to be at the rent then payable (such rent to
commence as from the date of such disclaimer
or winding-up or cesser of existence and
such new Lease to be subject to the same
Tenant's covenants and to the same provisos
-35-
<PAGE> 36
and conditions as those in force immediately
before such disclaimer) and to be granted at
the cost in all respects of the guarantors
in exchange for a counterpart duly executed
by the guarantors
(c) Notwithstanding but without prejudice to the
preceding paragraphs of this sub-clause not to
assign or underlet or part with possession of the
whole of the demised premises or to permit the
creation or assignment of any underlease or other
derivative interest in the whole of the demised
premises without in each case the prior license of
the Landlord such license to be given under seal and
not to be unreasonably withheld or delayed
(d) Not at any time expressly or impliedly to waive the
covenants to be inserted in any underlease pursuant
to sub-paragraph (i) of paragraph (b) of this
sub-clause but at all times to enforce the same
(e) Save as hereinbefore permitted not to part with or
share the possession of the demised premises or any
part thereof or grant any license to occupy relating
thereto provided that the sharing
-36-
<PAGE> 37
of occupation by a subsidiary of the Tenant (within
the meaning of Section 154 of the Companies Act
1948) or a limited company wholly controlled by the
Tenant is expressly permitted without consent having
first been obtained but only on condition that no
relationship of Landlord and Tenant is thereby
created and that the Landlord is first notified in
writing of the name of such occupant
(26) To give notice in writing of every assignment assent transfer
underlease mortgage charge or devolution of or other
instrument relating to the demised premises or any part
thereof and to produce the instrument of such assignment
assent transfer underlease mortgage or charge or any Probate
or Letters of Administration or other instrument (or a
properly certified copy thereof) in any way relating to the
demised premises within twenty one days after the execution or
grant thereof to the Solicitors of the Landlord and to pay
their reasonable fee for the registration thereof
(27) Not to suspend or permit or suffer to be suspended any heavy
load from the ceilings or main structure of the demised
premises nor load or use or permit or suffer to be loaded or
used the floor or structure of the demised premises in any
manner which will in any way impose a weight or strain in
excess of that which such premises are constructed
-37-
<PAGE> 38
to bear with due margin for safety or which will in any way
strain or interfere with the structural members thereof And
not to keep or use or permit or suffer to be kept or used in
the demised premises any petrol benzol or any other highly
inflammable spirit liquor fluid or substance or any materials
which may attack or in any way injure by percolation corrosion
vibration or otherwise the structure of any building comprised
therein or the keeping or using whereof may contravene any
general or local Acts of Parliament or any local regulation or
by-law
(28) Not to store goods or materials upon the Estate nor to form
any refuse dump or rubbish or scrap heap on the demised
premises or any part of the Estate but to remove regularly all
refuse rubbish and scrap which may have accumulated on the
demised premises and all used tin cans boxes and other
containers and to keep the same generally free from weeds
deposits of materials or refuse and not to bring or keep or
suffer to be brought or kept upon the demised premises
anything which is or may become in the opinion of the Landlord
untidy unclean unsightly or in any way detrimental to the
amenity of the neighborhood and within two months to comply
with the reasonable requirements of any written notice to
restore any amenity injured as aforesaid and in the event of
the Tenant failing to comply with such notice the Landlord
-38-
<PAGE> 39
shall be entitled to enter upon the demised premises and carry
out any works necessary to comply with such notice and to
recover the cost thereof from the Tenant
(29) To permit the Landlord and the tenants or occupiers of any
adjoining or adjacent property if authorized in writing by the
Landlord and their servants agents and workmen at all
reasonable times to enter upon the demised premises (and
except in an emergency having given reasonable previous notice
in writing to the Lessee) to execute repairs alterations
painting redecoration or other works to any adjoining property
the person or persons exercising such right making good all
damage thereby occasioned and causing as little disturbance as
possible to the Tenant as a result of the exercise of any such
right and also to permit the Landlord and the lessees tenants
or occupiers of any adjoining or adjacent property authorized
as aforesaid and their respective servants contractors agents
and workmen at any time (having except in an emergency given
reasonable previous notice in writing to the Tenant) to enter
upon the demised premises for the purpose of repairing
cleansing or maintaining any sewers drains gutters pipes
cables conduits and wires in or under the demised premises for
the accommodation of any adjoining or adjacent property the
person or persons exercising such right making good all damage
-39-
<PAGE> 40
thereby occasioned and causing as little disturbance as
possible to the Tenant AND also in case any dispute or
controversy shall at any time arise between the lessees
tenants or occupiers of any adjoining or adjacent property
relating to any ditches watercourses culverts sewers drains
gutters pipes cables wires or to any easements or privileges
whatsoever affecting or relating to the demised premises or
any adjoining or adjacent property to allow the same from time
to time to be settled and determined by the Landlord's
Surveyor in such manner (save in the case of manifest error)
as by writing under his hand he shall direct in that behalf
(30) Upon making an application for any consent or approval which
is required hereunder the Tenant shall disclose to the
Landlord such information as the Landlord may reasonably
require and shall pay the reasonable legal expenses and
surveyors' fees (including disbursements and stamp duty) of
the Landlord on all licenses and the duplicates thereof
resulting from all such applications by the Tenant including
charges fees and disbursements actually incurred where consent
is refused or the application is refused
(31) To permit every person or body entitled to any right easement
power or privilege in over or upon the demised premises or any
part thereof to exercise the same without hindrance or
objection
-40-
<PAGE> 41
(32) Not to obstruct the fire escape passageway forming part of the
demised premises and not to obstruct the access roads or
footpaths forming part of the Estate in any way whatsoever and
in particular not to permit any vehicles belonging to or
calling upon the Tenant to stand on the said access roads and
to carry out all loading and unloading within the demised
premises
(33) (a) Not to permit oil grease or other corrosive or
deleterious objectionable dangerous poisonous or
explosive matter or substance to enter the drains
sewers sewage pumps ditches watercourses or culverts
and to take all reasonable measures for ensuring
that any effluent discharged will not be corrosive
or otherwise harmful or cause obstruction or deposit
within the sewage disposal works or to the
bacteriological process of sewage purification
(b) Not to use any fuel burning apparatus on the demised
premises or any part thereof other than such as
shall have been approved in writing by the Landlord
prior to such use
(34) At all times during the said term to observe and perform such
reasonable regulations (if any) in respect of the Estate as
the Landlord may think necessary and expedient for the proper
management of the Estate
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<PAGE> 42
(35) Not to display any boards posters notices or signs upon the
demised premises except one notice or sign giving the name of
the Tenant and the business carried on at the demised premises
such one notice or sign and the location thereof to be
previously approved in writing by the Landlord such approval
not to be unreasonably withheld or delayed
(36) To observe and perform the agreements covenants and
stipulations contained or referred to in the property Charges
Registers to the Landlords freehold Title No. BK 209019 so far
as the same relate to the demised premises and still exist and
are enforceable and to keep the Landlord indemnified against
all actions proceedings costs claims and demands in any way
relating thereto pursuant to any breach thereof
(37) Not to use the Car Park or park cars or other vehicles therein
(38) To pay the Landlord's reasonable and proper legal charges in
respect of the preparation and completion of this Lease
LANDLORDS COVENANTS
5. THE Landlord HEREBY COVENANTS with the Tenant as follows:-
(1) That the Tenant paying the said yearly rent hereby reserved
and observing and performing the covenants conditions and
agreements hereinbefore contained on its part to be observed
and performed shall and may quietly enjoy the demised premises
during the said term
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<PAGE> 43
without any interruption by the Landlord or persons lawfully
claiming under the Landlord
(2) (a) To insure the demised premises against the insured
risks in some insurance office of repute in the full
reinstatement value thereof (to be determined from
time to time by the Landlord) and against three
years loss of rent and service charge and in case of
destruction or damage by any of the insured risks
(unless payment of any money payable under any
policy of insurance shall be refused either in whole
or in part by reason of any act neglect or default
of the Tenant or any undertenant or servants agents
or licensees of the Tenant or any undertenant) to
ensure that all moneys (other than monies paid in
respect of loss of rent and service charge) payable
under or by virtue of any such policy of insurance
as aforesaid shall with all convenient speed
(subject to all planning bye-law or other consents
or permissions necessary to enable the Landlord so
to do ) be laid out and applied in rebuilding
repairing or otherwise reinstating the demised
premises the Landlord making good any deficiencies
in the insurance monies out of its own funds
(b) To note the interest of the Tenant on any fire
policy effected by the Landlord and upon request
from the Tenant to produce
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<PAGE> 44
evidence of payment of the current years premium for
the aforesaid insurance paid yearly and further to
provide a copy of the extracts from any such policy
or policies _____ by the Landlord as will enable the
Tenant to know the full extent of the premises
fixtures and fittings covered thereby the risks
insured against and any exceptions conditions or
limitations in which the said policy is subject
(3) (Subject to payment by the Tenant of the rent and service
charge to provide the services set out in the Second Schedule
hereto
SUSPENSION OF RENT
6. IF during the said term the demised premises or any part thereof or
the means of access thereto shall be destroyed or damaged by any of
the insured risks so as to be unfit for occupation or use and the
policy or policies of insurance effected by the Landlord shall not
have been vitiated or payment of the policy moneys refused in whole
or in part in consequence of any act or default of the Tenant the
rent and service charge hereby reserved or a fair proportion thereof
according to the nature and extent of the damage sustained be
suspended until the demised premises shall have again been rendered
fit for occupation or use by the Tenant or a period of three years
(whichever shall be the shorter) and any dispute concerning this
clause shall be determined by a single arbitrator in accordance with
the Arbitration Acts
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<PAGE> 45
1950 and 1979 or any statutory modification or re-enactment thereof
for the time being in force
GENERAL PROVISIONS
7. PROVIDED ALWAYS and IT IS HEREBY AGREED AND DECLARED THAT:-
(1) These presents are made upon the express condition that if the
said rent or any part thereof shall be unpaid for Twenty one
days after any of the days hereinbefore appointed for payment
thereof whether the same shall have been lawfully demanded or
not or if any covenant on the Tenant's part herein contained
shall not be performed or observed or if the Tenant being an
individual or firm shall become bankrupt or compound or
arrange with his or its creditors or being a Company shall go
into liquidation either compulsory or voluntary (except for
the purpose of reconstruction or amalgamation) then and in any
of the said cases and thenceforth it shall be lawful for the
Landlord or any person or persons duly authorized by the
Landlord in that behalf into or upon the demised premises or
any part thereof in the name of the whole to re-enter and the
same to repossess and enjoy as if these presents had not been
made without prejudice to any right of action or remedy of
either party in respect of any antecedent breach of any of the
covenants by the other herein contained
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<PAGE> 46
(2) Each of the Tenant's covenants herein contained shall remain
in full force both at law and in equity notwithstanding that
the Landlord shall have waived or released temporarily or
permanently revocably or irrevocably or otherwise howsoever a
similar covenant or similar covenants affecting other
adjoining or neighboring premises for the time being belonging
to the Landlord
(3) The provisions of Section 196 of the Law of Property Act 1925
as amended by the Recorded Delivery Service Act 1962 shall
apply to all notices required to be served hereunder
(4) Where the context so requires or admits the masculine includes
the feminine the singular includes the plural and where two or
more persons are included in the expression "the Tenant"
IN WITNESS whereof this Lease was duly executed the day and year first before
written
THE FIRST SCHEDULE
PART I
The demised premises
Unit 5 Bracknell Business Centre Downmill Road Bracknell in the county of
Berkshire as the same is for the purposes of identification shown edged red on
the plan annexed hereto
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<PAGE> 47
PART II
Rights
1. In common with the Landlord its tenants servants agents those
authorized by them and all others having the same right the right at
all times to pass over and along the access roads forming part of the
Estate with or without vehicles and on foot only over the footpaths
2. The right to free passage and running of water soil electricity and
other services from and to the demised premises through the drains
sewers pipes wires and conduits serving the demised premises
constructed in or under any adjoining land of the Landlord or in
under or over any other property across which the Landlord shall have
rights to carry the same
3. A right of support shelter and protection to the demised premises
from the Estate and any building thereon
4. The right to use the communal refuse area in the Centre for the
disposal of waste
PART III
Exceptions and reservations
Excepting and reserving unto the Landlord and to all other persons entitled
thereto or authorized by the Landlord:
(i) The free and uninterrupted passage of and the running of water soil
gas electricity and telephone telegraphic and other communication
systems and
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<PAGE> 48
all other services through and along all sewers drains channels
watercourses gas water and other pipes conduits ducts cables wires
and all other conducting media and appliances which are now or within
the next 80 years laid in or installed in through or under the
demised premises
(ii) The right at all times and from time to time upon reasonable written
notice (save in case of emergency) to enter into and remain upon the
demised premises and all parts thereof with workmen and others and
with all necessary appliances and materials for the purpose of any
operation or thing connected with inspecting repairing maintaining
cleansing or examining the adjoining or neighboring land and any
buildings erected thereon and all parts thereof or restoring the
support shelter or protection thereto and the said sewers drains
channels watercourses gas water and other pipes conduits ducts cables
wires and all other conducting media and appliances serving the same
and to make all connections and disconnections which may be necessary
in relation thereto the person or persons exercising such rights
making good all damage thereby occasioned and causing as little
disturbances as possible to the Tenant
(iii) The right to execute or permit or suffer the execution of works or
alterations in any lands adjoining or near the demised premises or
the demolition rebuilding alteration or extension of any buildings
erected on such lands and to use or deal with such lands and
buildings in such manner as the Landlord
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<PAGE> 49
may in its absolute discretion think fit notwithstanding that by so
doing the access of light or air to the demised premises may thereby
be diminished or interfered with or prejudicially affected
(iv) All other rights easements quasi-easements rights in the nature of
easements privileges and liabilities to which the premises are or may
become
(v) The right of support shelter and protection now or hereafter
belonging to or enjoyed by all adjacent or neighboring land or
buildings an interest wherein in possession or reversion is at any
time during the term hereby granted vested in the Landlord
THE SECOND SCHEDULE
The Service Charges
Part I
Heads of Expenditure
1. Cleaning lighting repairing decorating maintaining altering or
renewing any parts of the Estate (other than those which fall within
the liabilities of a tenant) and complying with statutory
requirements
2. Providing maintaining repairing replacing and insuring (save insofar
as insured under other provisions hereof) electrical and mechanical
equipment and other plant machinery and services on the Estate
3. Employing all necessary staff including independent contractors
employed for the purposes of the Estate and making all payments in
relation to such
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<PAGE> 50
employment (including but without limiting the generality of such
provision the payment of the statutory and such other insurance
health pension welfare and other payments contributions and premiums
that the Landlord may at its absolute discretion deem desirable or
necessary and the provision of uniforms working clothes tools
appliances cleaning and other materials bins receptacles and other
equipment for the proper performance of their duties)
4. Paying all charges assessments impositions and other outgoings
payable by the Landlord in respect of all parts of the Estate not
exclusively occupied by a Tenant (including residential accommodation
that may at the Landlord's discretion be provided for a caretaker but
not including parts of the Estate intended to be let but not yet let
to any lessee)
5. Insuring and keeping insured the Estate and all the said
appurtenances thereof (in addition to the insurance of the demised
premises and all other parts of the Estate which are let or are
intended to be let) and in addition insuring against third party
employer's and public liability and such further or other risks
including three years' loss of rent and architects' and surveyors'
fees and demolition clearance and other expenses consequent upon or
incidental to rebuilding or reinstatement that the Landlord may deem
desirable or expedient
6. The reasonable costs incurred in managing the Estate by the
Landlord's agents
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<PAGE> 51
7. Taking all reasonable steps by the Landlord for complying with making
representations against or otherwise contesting the incidence of the
provisions of any legislation or orders or statutory requirements
thereunder concerning town planning public health highways streets
drainage or other matters relating or alleged to relate to the Estate
for which the Tenant is not directly liable hereunder
8. Providing all other services facilities or amenities for the Estate
which the Landlord deems desirable or expedient (excluding Landlords
Agents fees for collecting rents on the Estate)
Part II
Ascertainment of service charge
1. The amount of the service charges shall be ascertained annually as
soon after the end of the Landlord's financial year as may be
practicable and shall relate to such year in manner hereinafter
mentioned
2. The expression "Landlord's financial year" shall mean the period from
the First day of January to the thirty first day of December or such
other annual period as the Landlord may in its discretion from time
to time determine as being that in respect of which the accounts of
the Landlord either generally or relating to the Estate shall be made
up
3. The expenses and outgoings and other expenditure incurred by the
Landlord to be included in the service charges shall be deemed to
include not only
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<PAGE> 52
those expenses outgoings and other expenditure hereinbefore described
which have been actually disbursed incurred or made by the Landlord
during the year in question but also such reasonable parts of all
such expenses outgoings and other expenditure hereinbefore described
which are of a periodically recurring nature (whether recurring by
regular or irregular periods) whenever disbursed incurred or made and
whether prior to the commencement of the said term otherwise
including a sum or sums by way of reasonable provision for
anticipated expenditure thereof as the Landlord or its Agents may in
its or their discretion allocate to the year in question as being
fair and reasonable in the circumstances
4. On the days hereinbefore specified for the payment of rent during the
said term the Tenant shall pay to the Landlord such sums (hereinafter
referred to as "advance payments") in advance and on account of the
service charges for the then current Landlord's financial year as the
Landlord or its Agents shall from time to time specify at its or
their discretion to be fair and reasonable
5. As soon as practicable after the end of each Landlord's financial
year the Landlord shall furnish to the Tenant an account of the
service charges payable by the Tenant for that year due credit being
given therein for the advance payment made by the Tenant in respect
of the said year and upon the furnishing of such account there shall
be paid by the Tenant to the Landlord the service charge or any
balance found payable or there shall be allowed by
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<PAGE> 53
the Landlord to the Tenant any amount (insofar as it arises in
respect of the current expenditure as opposed to anticipated
expenditure) which may have been overpaid by the Tenant by way of
advance payment as the case may require PROVIDED ALWAYS that the
provisions of this part of this Schedule shall continue to apply
notwithstanding the expiration or sooner determination of the tenancy
hereby granted but only in respect of the period down to such
expiration or sooner determination as aforesaid
6. A certificate given by the Landlord's Surveyors as to the division of
any expenses and outgoings between the Centre and the Car Park shall
be final and binding upon the Landlord and the Tenant save in the
event of manifest error
THE COMMON SEAL of BENTON )
NOMINEES LIMITED was hereunto )
affixed in the presence of:- )
Director
Secretary
-53-
<PAGE> 54
DATED 27th June, 1991
BENTON NOMINEES LIMITED
and
ROBERT DAVID GRANT and SUSAN MARGARET GRANT
and
LANDMARK COMMUNICATION SERVICES LIMITED
and
RICHARD CHARLES JONES and DENNIS LEONARD WESTERN
LICENSE TO ASSIGN
_________________
with Surety
Lease of Unit 5
Bracknell Business Centre
Downmill Road
Bracknell
Berkshire
Cumberland Ellis Peirs
Columbia House
69 Aldwych
London WC2B 4RW
<PAGE> 55
THIS LICENSE is made the 27th day of June One Thousand Nine Hundred
and Ninety One BETWEEN BENTON NOMINEES LIMITED whose registered office is at
Hadrian House 61-65 Victoria Road, Farnborough Hampshire G14 7PA ("the
Landlord") ROBERT DAVID GRANT and SUSAN MARGARET GRANT his wife both of 915
London Road, Loudwater High Wycombe Bucks HP10 9FT trading as Grants Electrical
Supplies of Southernwood Windsor Lane, Great Kingshill Bucks ("the Tenant")
LANDMARK COMMUNICATION SERVICES LIMITED whose registered office is at 32-36
Bath Road, Mounslow TW3 3EF ("the Assignee") and RICHARD CHARLES JONES of 17
Riverholme Drive, West Ewell Surrey KT19 9TG and DENNIS LEONARD WESTERN of 26
Cross Gate Close Martins Heron Bracknell Berks ("the Surety")
WHEREAS:
(1) The Landlord is entitled to the reversion immediately
expectant upon the determination of the term created by the lease ("the Lease")
specified in the Schedule hereto
(2) The term created by the Lease is vested in the Tenant
(3) The Tenant wishes to assign the Lease to the Assignee for all
the residue now unexpired of the said term and has requested the consent of the
Landlord so to do by reason of a covenant to that effect contained in the Lease
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<PAGE> 56
(4) The Landlord has agreed to grant License for such assignment
upon the Assignee entering into the covenant hereinafter contained and in
consideration of the Surety entering into the guarantee hereinafter contained
NOW THIS DEED WITNESSES as follows: -
1. (a) IN consideration of the covenants by the Assignee
and the Surety hereinafter contained the Landlord hereby GRANTS LICENSE to the
Tenant to assign the Lease to the Assignee for the residue of the term created
thereby
(b) THE license hereby granted is restricted to the
particular assignment hereby authorized and the covenants contained in the
Lease against assignment shall otherwise remain in full force and effect
2. THE Assignee HEREBY COVENANTS with the Landlord that the
Assignee will as from the date on which the term granted by the Lease is
assigned to the Assignee pay the rents thereby reserved and perform and observe
the covenants on the part of the lessee and the stipulations and conditions
therein contained and in particular (but without prejudice to the generality of
the foregoing) the Assignee will not assign transfer underlet or part with
possession of the property demised by the Lease without the consent in writing
of the Landlord for that purpose first had and obtained.
3. IN consideration of the License hereinbefore contained being
granted at their request the Surety hereby COVENANTS with and guarantees to the
Landlord (which expression shall in this clause 3 include the Landlords
successors and
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<PAGE> 57
assigns) that at all times throughout the term granted by the Lease the rents
thereby reserved and all other sums and payments therein covenanted to be paid
by the lessee for the time being will be paid at the respective times and in
manner therein appointed for the payment thereof and the several covenants on
the part of the lessee and the stipulations and conditions therein contained
will be performed and observed as well after as before any disclaimer AND that
the Surety will pay and make good to the Landlord all losses costs and expenses
sustained by the Landlord through the default of the lessee as aforesaid in
respect of any of the before mentioned matters PROVIDED that any neglect or
forbearance of the Landlord in endeavoring to obtain payment of the said
several rents and payments as and when the same become due or delay in taking
any steps to enforce performance or observance of the said covenants on the
part of the lessee and the stipulations and conditions therein contained and
any time which may be given by the Landlord and any approval given by the
Landlord to the lessee as aforesaid under the provisions of the Lease shall not
release or in any way lessen or affect the liability of the Surety under this
guarantee PROVIDED FURTHER that if any liquidator or trustee in bankruptcy of
the lessee shall disclaim the Lease or if the lessee (being a body corporate)
shall be wound up or cease to exist or if the term granted thereby shall be
otherwise determined prematurely the Surety HEREBY COVENANTS with the Landlord
that the Surety will if required by the Landlord accept from the Landlord a
lease of the premises demised by the Lease for a term equal in duration to the
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<PAGE> 58
residue remaining unexpired of the term of the Lease at the time of the
granting of such lease to the Surety such lease to contain the like tenant's
covenants respectively (including the proviso for re-entry) as are contained in
the Lease and to be granted at the cost of the Surety in exchange for a
counterpart duly executed by the Surety
4. The conditions for re-entry contained in the Lease shall be
exercisable as well on any breach of any covenant herein contained as on the
happening of any of the events mentioned in the said conditions for re-entry
5. The Tenant agrees to pay and indemnify the Landlord against
all costs fees and expenses (including VAT) of the Landlord and any superior
lessors and mortgagees and their respective solicitors and surveyors of and
incidental to the preparation and grant of this License and the application
therefor
6. If the assignment hereby authorized shall not have been
completed and registered with the Landlord's solicitors and the registration
fee paid within three months after the date hereof the Landlord may by notice
in writing to the Tenant forthwith determine and cancel the consent hereby
given
7. Covenants by any party hereto shall be deemed to be joint and
several covenants where that party is more than one person or corporation and
where the context so admits the expressions "the Tenant" and "the Assignee"
include their respective successors in title
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<PAGE> 59
IN WITNESS whereof this deed has been executed by the parties hereto
and is intended to be and is hereby delivered on the date first before written
THE SCHEDULE
------------
The Lease
Date: 22nd March 1985
Parties: (1) BENTON NOMINEES LIMITED
(2) ROBERT DAVID GRANT and SUSAN MARGARET GRANT trading as GRANTS
ELECTRICAL SUPPLIES
Description of Property: Unit 5 Bracknell Business Centre
Downmill Road Bracknell
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<PAGE> 60
Term: 25 years from 25th December 1984
THE COMMON SEAL of BENTON )
NOMINEES LIMITED was affixed )
to this deed in the presence )
of: - )
Director
Secretary
Term: 25 years from 25th December 1984
SIGNED as a deed by the said )
ROBERT DAVID GRANT in the )
presence of: - )
SIGNED as a deed by the said )
SUSAN MARGARET GRANT in the )
presence of: - )
THE COMMON SEAL of LANDMARK )
COMMUNICATION SERVICES LIMITED )
was affixed to this deed in the )
presence of: - )
Director
Secretary
SIGNED as a deed by the said )
RICHARD CHARLES JONES in the )
presence of: - )
-7-
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
AGREEMENT, made this 27th day of September, 1989, effective October 2,
1989, by and between Americable, Inc., a Minnesota corporation, having its
principal place of business in Eden Prairie, Minnesota, hereinafter referred to
as "Employer" or "AMC", and Gary L. Eizenga, residing at 1351 Wild Rose Lane,
Lake Forest, Illinois 60045, hereinafter referred to as "Employee" or
"Eizenga".
WITNESSETH:
WHEREAS, Employer desires to assure itself of the services of Employee,
and to that end desires to enter into an agreement of employment with him, upon
the terms and conditions hereinafter set forth;
WHEREAS, Employee wishes to enter into an Employment Agreement with
Employer upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement only, the following
terms shall have the meanings hereinafter set forth:
(a) The term "NSU" shall refer to North Star Universal, Inc., a Minnesota
corporation, the corporate parent of AMC.
(b) The term "Reference Rate" shall mean the rate of interest publicly
announced by the First Bank National Association, St. Paul,
Minnesota, as its Reference Rate, as the same may change from time to time.
<PAGE> 2
2. Employment. Employer agrees to employ Employee, and Employee agrees
to accept such employment from Employer, upon the terms and conditions
hereinafter set forth.
3. Duties. Employee shall serve in an executive capacity in the
Minneapolis, Minnesota metropolitan area and shall be President and Chief
Operating Officer of AMC, performing such services as the Chief Executive
Officer and the Board of Directors of Employer may from time to time determine,
consistent with the ordinary duties associated with the position of President
and Chief Operating Officer. Employee shall devote his full time and best
efforts to the business of Employer.
4. Term. This Agreement shall be for a term commencing with the
effective date of this Agreement, and terminating on December 31, 1994,
subject, however, to termination during each year as provided herein.
5. Base Salary. As base compensation to Employee for all services
rendered by Employee to Employer commencing on the effective date of this
Agreement, Employer agrees to pay Employee an annual Base Salary ("Base
Salary") of $140,000.00. Such salary shall be subject to any withholding
required by law and shall be payable in equal semi-monthly installments on the
15th and last day of each month, or at such shorter intervals as Employer may
adopt. Said salary shall be pro-rated for any partial years covered by this
Agreement. At the discretion of Employer, the Base Salary may be increased
from time to time.
-2-
<PAGE> 3
6. Annual Bonuses. As additional compensation to Employee during the
term of this Agreement, Employer agrees to pay Employee annual bonuses as
follows:
(a) For calendar year 1989, Employee shall receive an annual bonus equal
to 30% of his Base Salary, pro-rated for the number of days he is employed in
1989.
(b) For calendar years 1990 through 1994, Employee shall receive an
annual bonus as follows:
(i) Prior to December 31, 1989, and each subsequent December 31,
through 1993, Employer and Employee shall mutually agree upon a numerical
"Target" with respect to the financial performance of Employer for the
subsequent calendar year, which Target shall be the basis upon which
Employee's annual bonus for the calendar year shall be based.
(ii) Employer shall pay Employee an annual bonus with respect to
the performance of the Employer toward the Targeted amount, as follows:
(A) If Employer's performance reaches the Targeted
amount, Employee's annual bonus shall be thirty (30%) percent of his Base
Salary.
(B) If Employer's performance reaches one hundred twenty
(120%) percent or more of the Targeted amount, Employee's annual bonus
shall be forty (40%) percent of his Base Salary.
(C) If Employer's performance is less than eighty (80%)
percent of the Targeted amount, Employee shall receive no annual bonus.
-3-
<PAGE> 4
(D) If Employer's performance is between eighty (80%)
percent and one hundred (100%) percent of the Targeted amount, Employee
shall be paid an annual bonus on a pro rata basis with a bonus of twenty
(20%) percent of Employee's Base Salary being paid for Employer
performance of eighty (80%) percent of Targeted amount, and thirty (30%)
percent of Employee's Base Salary being paid as a bonus for performance of
one hundred (100%) percent of the Targeted amount.
(E) If Employer's performance is between one hundred
(100%) percent and one hundred twenty (120%) percent of the Targeted
amount, then Employee shall be paid an annual bonus on a pro rata basis
with an annual bonus of thirty (30%) percent of Employee's Base Salary
being paid for Employer's performance at one hundred (100%) percent of the
Targeted amount, and forty (40%) percent of Employee's Base Salary being
paid as an annual bonus for Employer's performance of one hundred twenty
(120%) percent of the Targeted amount.
(c) Annual bonuses shall be payable without interest 90 days after each
calendar year end.
(d) Bonuses payable pursuant to this paragraph will be paid on a pro-rata
basis for any partial years at the termination of this Agreement. Said bonuses
shall be paid 90 days after the end of any partial year.
-4-
<PAGE> 5
(e) Bonuses shall be paid pursuant to this paragraph only so long as
Employee is employed pursuant to this Agreement. If Employee terminates his
employment without cause, then any bonuses accrued for the year in which
Employee terminates his employment will be forfeited. Any bonus payable to
Employee shall not be forfeited if Employee's employment terminates on account
of death, disability, termination by Employer without cause, or termination by
Employee for cause; bonuses payable pursuant to this sentence shall be paid on
a pro-rata basis for the year involved.
7. Stock Option Agreement. Employees shall be granted an option to
purchase 2.5% of the Employer's common stock outstanding on the effective date
of this Agreement at its then book value per share, pursuant to the terms of a
Stock Option Agreement, as attached hereto as Exhibit A, and incorporated
herein by reference.
8. Severance Pay Provisions.
(a) If Employer terminates Employee without cause, or if Employee
terminates this Agreement with cause at any time, then as severance pay,
Employee shall receive his monthly Base Salary during each of the 18 months
immediately following termination, plus a pro-rata share of his annual bonus
accrued up to the date of termination. Said pro-rata bonus will be paid to
Employee, without interest, ninety (90) days after the end of the calendar year
in which accrued.
-5-
<PAGE> 6
(b) If Employee terminates this Agreement without cause, or Employer
terminates this Agreement with cause, Employee shall receive no severance pay,
and shall forfeit any accrued annual bonus for the year of termination. Said
pro-rata bonus will be paid to Employee without interest ninety (90) days after
the end of the calendar year in which accrued.
9. Additional Benefits and Working Facilities.
(a) Employer shall furnish Employee with all equipment, office space,
secretarial help, and such other items relating to his employment as are
determined useful and necessary by Employer and which are customary for the
duties of Employee.
(b) Employee shall participate in the NSU flex benefits plans which NSU
shall offer to employees of Employer during the term of this Agreement.
Employee and his dependents may participate in such plans on the same basis as
all other employees of Employer and NSU. Generally, such plans provide
coverage for eligible health care expenses which are paid at reasonable and
customary rates, as further stipulated in the plan documents.
(c) Employee will be entitled to four (4) weeks annual vacation.
(d) Employer shall reimburse Employee for all reasonable expenses
incurred by Employee in connection with Employer's business, including, but not
limited to, expenses of travel and entertainment, upon presentation of itemized
statements therefor. In the event any such expense is disallowed to the
Employer as
-6-
<PAGE> 7
a deduction for income tax purposes by any taxing authority, Employee shall
forthwith pay to Employer an amount equal to the income tax cost to the
Employer for such disallowance.
(e) Employer shall pay Employee Forty Thousand and No/100ths ($40,000.00)
Dollars as a relocation allowance. Employee shall receive Ten Thousand and
No/100ths ($10,000.00) Dollars of this allowance upon the execution of this
Agreement. The balance of this allowance shall be paid periodically upon the
presentation to Employer of itemized receipts for relocation expenses. To the
extent that Employee has not incurred all relocation expenses within 30 days of
his commencement of Employment, the unpaid balance of the relocation allowances
shall be paid to Employee 30 days after the commencement of his employment.
10. Events of Termination. This Agreement shall terminate as follows:
(a) On December 31, 1994;
(b) By mutual written agreement of the parties;
(c) Upon the death of Employee;
(d) At the option of Employee, with respect to a cause under the control
of Employer, upon one month's written notice by Employee to Employer, with
Employer having one month to correct said cause. "Cause" shall be defined as a
breach of the terms of this Agreement by Employer; or
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<PAGE> 8
(e) At the option of Employer, only upon the occurrence (or afterwards)
of any of the following events any one of which shall be considered as
termination "for cause":
(i) If Employee shall continue to materially neglect his duties or
devote a substantial portion of his time or attention to other interests
during normal working hours thirty (30) days after Employee receives
advance written notice from Employer to correct such neglected duty or
devotion of time to such other interests;
(ii) The conviction of Employee of any crime punishable as a
felony;
(iii) Upon the expiration of six (6) consecutive months of continued
disability after the certification by a Physician of physical or mental
disability of Employee to such an extent that he is unable to carry on a
substantial portion of his usual and customary duties.
11. Confidential Information. Employee shall not at any time, either
during Employee's employment or after the termination of such employment,
divulge to others or use for Employee's own benefit any proprietary or
confidential information or trade secrets of Employer obtained during the
course of employment with Employer relating to sales, technology, formulas,
processes, methods, machines, manufacturers, compositions, ideas, improvements,
or inventions belonging to or relating to the Employer, its clients,
subsidiaries, affiliates, successors or associated companies.
-8-
<PAGE> 9
12. Property of the Employer. All memoranda, notes, records, papers,
inventions, and other documents, items and all copies thereof relating to the
Employer and its operation of business and all objects related thereto are and
remain the property of the Employer including, but not limited to, those
developed, investigated or considered by the Employer; provided however, that
Employee shall remain the owner of any invention for which no equipment,
supplies, or trade secret information of the Employer was used and which was
developed entirely on Employee's own time, and;
(a) Which does not relate (1) directly to the business of the
Employer or (2) to the Employer's actual or demonstrably anticipated
research or development; or
(b) Which does not result from any work performed by Employee for
the Employer.
13. Covenant Not to Compete. As additional consideration for this
Agreement, Employee hereby covenants and agrees that during his full or part
time employment by Employer and for three years thereafter, whether Employee's
termination of employment is the result of discharge or otherwise, provided
that Employer is not in default to Employee under the terms hereof, Employee
shall not within the continental United States directly or indirectly:
(a) Enter into or engage (i) in the business of manufacturing,
selling, or distributing computer cables, connectors or related computer
accessories, or
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<PAGE> 10
(ii) in the business of providing services, including contract computer
maintenance, depot computer repair, and computer refurbishment and
reconfiguration, either as an individual for his own account, or as a
partner or joint venturer, or as an employee, agent, or salesman for any
person, or as an officer or director of a corporation or otherwise,
provided, however, that nothing prohibited by this covenant shall apply to
me health care industry as it relates to the distribution of products not
related to computer cables, connectors or related computer accessories.
Nothing herein shall prevent Employee from buying and owning shares of
stock of any corporation that may be deemed to compete with Employer,
except that if such stock is not listed on any national or local exchange
at the date of this Agreement, Employee shall be limited to owning not
more than 10% of the outstanding shares of any such company. Solicitation
or acceptance of business shall constitute "engaging in business" in
violation of this Agreement. Except as qualified herein, this covenant on
the part of Employee shall be construed as an agreement independent of any
other provision in this Agreement.
(b) Induce or attempt to induce any employee of Employer or its
subsidiaries to leave the employ of Employer or its subsidiaries or in any
way interfere with the relationship between Employer and its subsidiaries
and any employee of Employer or its subsidiaries.
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<PAGE> 11
(c) Induce or attempt to induce any customer, supplier, licensees
or business relation of Employer or its subsidiaries to cease doing
business with Employer or its subsidiaries or in any way interfere with
the relationship between any customer or business relation of Employer or
its subsidiaries.
In the event of a breach or threatened breach by Employee of the provisions
hereof, Employer shall be entitled to seek an injunction restraining Employee
from competing with Employer. Nothing herein shall be construed as prohibiting
Employer from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. Employee acknowledges and agrees
that a breach of any of the foregoing covenants shall entitle Employer to
withhold and retain any and all amounts owed or to be owed by the Employer to
the Employee pursuant to Paragraphs 5, 6, and 9, in addition to obtaining such
damages and/or injunctive relief, as may be available at law or equity.
14. Reasonableness of Provisions. The parties to this Agreement consider
the terms, covenants and conditions of this Agreement, including without
limitation, the restrictions imposed by Paragraph 13, to be reasonable and
appropriate as to the scope of business activities, time
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<PAGE> 12
and geographic area specified. If, however, such terms, covenants or
conditions are found by any court of competent jurisdiction to be unreasonable
because they are, or any one of them is, too broad, then such terms, covenants
or conditions shall nevertheless remain effective, but shall be considered
amended as to the scope of business activities, time and geographic area
specified in whatever manner is considered reasonable by that court, and as so
amended shall be enforced.
15. Physical Examination. At any time that Employer deems appropriate,
but not more than once every year, Employee agrees to undergo an examination by
a physician of Employer's choice, such examination to be at no cost to
Employee.
16. Additional Documents. The parties shall each, without further
consideration, execute such additional documents as may be reasonably required
in order to carry out the purposes and intent of this Agreement and to fulfill
the obligations of the respective parties hereunder.
17. Waiver. Any waiver of any term of condition of this Agreement shall
not operate as a waiver of any other breach of such term or condition, or of
any other term or condition, nor shall any failure to enforce a provision
hereof operate as a waiver of such provision or of any other provision hereof.
18. Notices. All communications with respect to this Agreement shall be
considered given if delivered or sent as follows:
(a) To Employee, by first class certified mail, postage prepaid, return
receipt requested, addressed as follows:
Gary L. Eizenga
1351 Wild Rose Lane
Lake Forest, Illinois 60045
with copy to:
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<PAGE> 13
(b) To Employer, by first class certified mail, postage prepaid, return
receipt requested, addressed as follows:
Americable, Inc.
7450 Flying Cloud Drive
Eden Prairie, MN 55344
with copy to:
George Roberts
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
(c) To North Star Universal, Inc., by first class certified mail, postage
prepaid, return receipt requested, addressed as follows:
North Star Universal, Inc.
Attn: Corporate Secretary
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
with copy to:
George Roberts
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
or mailed to such other addresses as the parties hereto may designate by notice
given in like manner. Notice shall be effective three (3) days after mailing
or upon personal delivery.
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<PAGE> 14
19. Entire Agreement. This Agreement, together with all exhibits and
writings required or contemplated hereby, constitutes the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and no party shall be liable or bound to another in any manner by any
warranties, representations, or guarantees, except as specifically set forth
herein.
20. Modifications, Amendments and Waivers. The parties hereto at any
time may, by written agreement, (i) extend the time for the performance of any
of the obligations or other acts of the parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained in this Agreement
or in any exhibit, schedule, letter, certificate or other instrument delivered
pursuant hereto; (iii) waive compliance with any of the covenants or agreements
contained in this Agreement; or (iv) make any other modifications of this
Agreement. This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing executed by the parties hereto.
21. Arbitration. Except for any matter in which injunctive relief is
requested, any matter of disagreement in connection with this Agreement shall
be promptly settled by arbitration in Minneapolis, Minnesota, pursuant to the
rules of the American Arbitration Association. The arbitrator's decision may
be filed with the District Court, and shall become the final judgment.
The Minnesota Rules of Civil Procedure which provide for discovery by
either party shall apply and be in full effect for said arbitration procedure.
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<PAGE> 15
The "non-prevailing" party in any arbitration proceeding shall reimburse
the "prevailing" party for all reasonable costs of the arbitration proceeding,
including, but not necessarily limited to, reasonable attorney's fees,
arbitrator's fees, deposition expense, photocopy expense, and the like, and in
addition, the prevailing party shall be reimbursed for funds advanced under
protest with respect to the disputed matter under any provision of this
Agreement, as well as interest at the Reference Rate on any such funds
advanced.
22. Severability. No finding or adjudication that any provision of this
Agreement is invalid or unenforceable shall affect the validity or
enforceability of the remaining provisions herein, and this Agreement shall be
construed as though such invalid or unenforceable provisions were omitted.
23. Audit. Until Employee is satisfied that all payments under this
Agreement are appropriate, Employee or his agents shall have the right to audit
the books and records of Employer, and to examine any other records reasonably
necessary to determine the accuracy of the calculations provided with this
Agreement, provided the same shall not unreasonably interfere with Employer's
normal business operations. The audit will be at Employee's expense, unless
cumulative errors in Employee's favor are found exceeding $2,000, in which case
Employer will bear the cost of said audit. Any errors disclosed by said audit
shall be rectified and paid within 10 days of the conclusion of the audit,
unless the party required to pay the same shall object, in which case the
matter shall be submitted to
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<PAGE> 16
arbitration pursuant to paragraph 21. In the case of any errors disclosed by
said audit, any monies due to be transferred will bear interest at the
Reference Rate from the date the error was made.
24. Miscellaneous.
(a) The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective legal representatives, successors and
assigns of the parties thereto.
(b) This Agreement is made pursuant to and shall be construed under the
laws of the State of Minnesota.
(c) This Agreement may be executed in one or more counterparts and each
of such counterparts shall for all purposes be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
above written.
EMPLOYER:
Americable, Inc.
By /s/
------------------------------------------
Its President
----------------------------------------
EMPLOYEE:
/s/
-----------------------------------------
Gary L. Eizenga
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<PAGE> 17
EXHIBIT A
STOCK OPTION AGREEMENT
Agreement made this 27th day of September, 1989, by and between
Americable, Inc., a Minnesota corporation, hereinafter referred to as "AMC" or
the "Company"; North Star Universal, Inc., a Minnesota corporation, hereinafter
referred to as "NSU" or "Optionor"; and Gary L. Eizenga, hereinafter referred
to as "Eizenga" or "Optionee".
WITNESSETH:
WHEREAS, simultaneously with the execution of this Agreement, AMC and
Eizenga have entered into an Employment Agreement; and
WHEREAS, as an additional incentive to Eizenga, the parties wish to enter
into an agreement whereby Eizenga is awarded options to purchase up to 2.5% of
the Company's Common Stock; and
WHEREAS, as of the date hereof, the capitalization of the Company consists
only of 20,000 shares of Common Stock, all of which is issued to NSU.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
1. Purpose. This Stock Option Agreement (the "Agreement") is intended
to advance the interests of the Company, its shareholders, and its subsidiaries
by encouraging and enabling Eizenga upon whose judgment, initiative and effort
the Company is largely dependent upon for the successful conduct of its
business, to
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<PAGE> 18
acquire and retain a proprietary interest in the Company by ownership of its
stock. The Option granted under this Agreement is intended to be an option
which does not meet the requirements of Section 422A of the Internal Revenue
Code of 1986 (the "Code").
2. Definitions. As used throughout this Agreement, unless the context
otherwise requires a different meaning, the terms defined below shall have the
following meaning (such definitions to be equally applicable to the singular
and plural forms thereof):
(a) "Book Value" shall mean the assets of the Company, less its
liabilities (but excluding long term liabilities owed to NSU or Affiliates),
all as determined by generally accepted accounting principles.
(b) "Book Value Per Share" shall mean the Book Value, divided by the then
outstanding number of Shares.
(c) "Common Stock" means the Company's Common Stock, no par value per
share.
(d) "Corporate Transaction" shall mean:
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or
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<PAGE> 19
(iii) any other corporate reorganization or business combination in
which more than fifty percent (50%) of the Company's outstanding voting stock
is transferred to different holders in a single transaction or a series of
related transactions, except as part of a public offering.
(e) "Employment Agreement" shall mean the Employment Agreement between
Eizenga, as Employee and the Company, as Employer, of even date herewith.
(f) "Initial Public Offering" shall mean an offering of the Company's
Common Stock registered with the Securities and Exchange Commission or the
securities division of any state, or an offering made to the public pursuant to
an exemption from registration.
(g) "Shares" shall mean shares of Common Stock of the Company.
(h)
(i) "Subsidiary" or "Subsidiaries" means a subsidiary corporation or
corporations as defined in Section 425 of the Code.
(j) "Successor" means the legal representative of the estate of Eizenga
or the person or persons who acquire the right to exercise an option by bequest
or inheritance or by reason of the death of Eizenga.
(k) "Reference Rate" means the rate of interest announced by the First
Bank National Association, St. Paul, Minnesota as its "reference rate", as that
rate changes from time to time.
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<PAGE> 20
(l) "Affiliate" shall include, with respect to any party, any Person
which directly or indirectly controls, is controlled by, or is under common
control with such party and in addition, in the case of NSU or the Company,
each Officer, Director or Shareholder who owns more than five (5%) percent of
any class of the equity securities of NSU or the Company, and each joint
venturer and partner of the Company or NSU. All Subsidiaries of NSU shall be
deemed to be Affiliates of NSU.
(m) "Person" shall mean any natural person, corporation, firm,
association, partnership, joint venture, government, governmental agency or any
other entity, whether acting in an individual, fiduciary or other capacity.
(n) "Permanent Disability" or "Permanently Disabled" shall mean Eizenga's
physical condition at the expiration of six consecutive months of continued
disability after the certification by a physician of physical or mental
disability of Eizenga to such an extent that he is unable to carry on a
substantial portion of his usual and customary duties.
3. Grant of Option. NSU hereby grants to Eizenga an option to purchase
up to 500 Shares of the Company's Common Stock which it holds.
4. Exercise of Option.
(a) Exercise Dates. This Option shall not be exercisable immediately,
but except as otherwise provided in paragraph 4 shall only be
exercisable under the following schedule, each successive date being
hereinafter referred to as an "Exercise Date".
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<PAGE> 21
<TABLE>
<CAPTION>
Exercise Date Number of Shares Exercisable
------------- ----------------------------
<S> <C>
October 1, 1990 100
October 1, 1991 100
October 1, 1992 100
October 1, 1993 100
October 1, 1994 100
---
500
</TABLE>
(b) Exercise Price. The Exercise Price shall be the Book Value per Share
as of September 30, 1989.
(c) Full-time employment necessary. Eizenga must be a full-time employee
of the Company (within the terms of the Employment Agreement) (except as
provided in Paragraph 4(d)) from the effective date of this Agreement through
each of the Exercise Dates specified in subparagraph (a) above, in order to
exercise the Shares applicable on each respective Exercise Date.
(d) Duration of Options. Each portion of the Option herein granted is
exercisable on its respective Exercise Date as set forth in subparagraph 4(a),
and shall be exercisable until 11:59 p.m. on October 1, 1999, except that in
the event of Eizenga's termination of employment, regardless of the reason for
termination, death, or permanent disability, all options which were otherwise
exercisable as of the date of termination, death, or permanent disability, may
be exercised only for a
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<PAGE> 22
period of ninety (90) days following termination, death or disability, or until
11:59 p.m. on October 1, 1999, whichever date first occurs.
(e) Adjustment. This Option and each separately exercisable portion
thereof shall be subject to adjustment as provided in Paragraph 5(a).
(f) Vesting of Shareholder Rights. Neither Eizenga nor his Successor
shall have any of the rights of a shareholder of the Company until Eizenga
exercises his option or portion thereof as provided herein and pays the
consideration for all shares purchased.
(g) Nontransferability of Option. No Option shall be transferable or
assignable to Eizenga, otherwise than by will or by laws of descent and
distribution and this Option and each portion thereof shall be exercisable,
during Eizenga's lifetime, only by him. No Option shall be pledged or
hypothecated in any way and no Option shall be subject to execution,
attachment, or similar process.
5. Adjustments.
(a) In the event that the outstanding shares of Common Stock of the
Company are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares of other securities of the Company or of
another corporation, by reason of a recapitalization, reclassification, stock
split-up, combination of shares, or dividend or other distribution payable in
capital stock, appropriate adjustment shall be made by the Optionor in the
number and kind of Shares as to which this Option, or portions thereof then
unexercised, shall be
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<PAGE> 23
exercisable, to the end that the proportionate interest of the holder of the
Option shall, to the extent practicable, be maintained as before the occurrence
of such event. Such adjustment in outstanding options shall be made without
change in the total price applicable to the unexercised portion of the Option
but with a corresponding adjustment in the option price per share.
(b) In the event of the dissolution or liquidation of the Company or a
Corporate Transaction, any Option granted under this Agreement shall terminate
as of a date to be fixed by the Company and NSU ("Option Termination Date"),
provided that not less than 30 days' written notice of the Option Termination
Date so fixed shall be given to Eizenga and Eizenga shall have the right prior
to the Option Termination Date to exercise the Option granted hereunder as to
any part of the shares optioned, not previously exercised, i.e. 500 shares,
less shares previously exercised, subject to adjustments.
(c) If the Company is the surviving entity in any merger or other
business combination, then this Option, if outstanding immediately after such
merger or other business combination, shall be appropriately adjusted, by the
Optionor and the Company, to apply and pertain to the number and class of
securities which would be issuable to Eizenga in the consummation of such
merger or business combination if the option were exercised immediately prior
to such merger or business combination, and appropriate adjustments shall also
be made to the price payable per Share, provided the aggregate price payable
hereunder shall remain the same.
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<PAGE> 24
(d) This Agreement shall not in any way affect the right of the Company
to adjust, reclassify, reorganize or otherwise make changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
6. Method of Exercising Option.
(a) In order to exercise this option or any part thereof, Eizenga (or, in
the case of exercise after his death, his Successor) must take the following
actions:
(i) Execute and deliver to the Company a stock purchase agreement
in the form of Exhibit A to this Agreement (the "Stock Purchase and
Shareholder's Agreement" hereinafter "Purchase Agreement") (which Purchase
Agreement the Company and NSU also agree to execute and deliver to Eizenga);
(ii) Pay the aggregate option price for the purchased shares in
cash.
(iii) Furnish to the Company appropriate documentation that the
person or persons exercising the option, if other than Eizenga, have the right
to exercise this option.
(b) This Option shall be deemed to have been exercised with respect to
the number of Shares specified in the Purchase Agreement at such time as the
executed Purchase Agreement for such Shares shall have been delivered to the
Company. Payment of the Option price shall immediately become due and shall
accompany the Purchase Agreement. As soon thereafter as practical, the Company
shall mail or deliver to Eizenga or to the other person or persons exercising
this Option a
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<PAGE> 25
certificate or certificates representing the Shares so purchased and paid for,
with the appropriate legends affixed thereto.
(c) In no event may this Option be exercised for any fractional shares.
7. Compliance with Laws and Regulations.
(a) The exercise of this Option and the issuance of Shares upon such
exercise shall be subject to compliance by the Company, NSU and Eizenga with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Eizenga shall execute
and deliver to the Company such representations in writing as may be requested
by the Company in order for it to comply with the applicable requirements of
federal and state securities laws.
8. Waivers, Amendments, etc. No amendment to or waiver of any provision
of this Agreement shall be binding unless in writing and executed by NSU, the
Company and Eizenga. No failure or delay on the part of any party in
exercising any power or right under this Agreement or any instrument executed
pursuant hereto shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise of any such power or right.
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<PAGE> 26
9. Notices. All communications and notices provided under this
Agreement or any Instrument executed pursuant hereto shall be in writing and
sent by first class certified mail, and if to NSU addressed and delivered to it
at:
North Star Universal, Inc.
610 Park National Bank Building
5353 Wayzata Boulevard
St. Louis Park, Minnesota 55416
Attention: Corporate Secretary
with copy to:
George W. Roberts
5353 Wayzata Boulevard
610 Park National Bank Building
Minneapolis, MN 55416
And if to the Company addressed or delivered to:
Americable, Inc.
7450 Flying Cloud Drive
Eden Prairie, Minnesota 55344
with copy to:
George W. Roberts
5353 Wayzata Boulevard
610 Park National Bank Building
Minneapolis, MN 55416
And if addressed or delivered to Eizenga at:
Gary L. Eizenga
1351 Wild Rose Lane
Lake Forest, Illinois 60045
with copy to:
Robert J. Ryan
560 Green Bay Road, #303
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<PAGE> 27
Winnetka, Illinois 60093
or to any party at such other address as may be designated by such party in a
notice to the other parties. Any notice, if mailed properly addressed, shall
be deemed given on the third business day after mailing postage prepaid.
10. Severability. Any provision of this Agreement or any Instrument
executed pursuant hereto which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability of such provision in any other
jurisdiction.
11. Cross References. References in this Agreement or in any instrument
executed pursuant hereto to any section or article are, unless otherwise
specified, to such section or article of this Agreement or such instrument, as
the case may be.
12. Headings. The various headings of this Agreement and of any
Instrument executed pursuant hereto are inserted for convenience only and shall
not affect the meaning or interpretation of this Agreement of such Instrument
or any provisions hereof or thereof.
13. Counterparts, Effectiveness, etc. This Agreement may be executed by
the parties hereto in counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
14. Governing Law. This Agreement, and each other instrument executed
pursuant hereto shall each be governed by and construed in accordance with, the
laws of the State of Minnesota, and Eizenga submits to the personal
jurisdiction of
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<PAGE> 28
the federal and state courts located in such state in connection with all
actions, matters and disputes in any way related thereto.
15. Arbitration. In the event that any matter of disagreement shall arise
in connection with this Agreement, except for any disagreement in which
equitable relief is sought, such disagreement shall be promptly settled by
arbitration in Minneapolis, Minnesota, pursuant to the rules of the American
Arbitration Association.
The rules of practice for the District Court for the State of Minnesota
which provide for discovery by either party shall apply and be in full effect
for said arbitration procedure. The "non-prevailing" party in any arbitration
proceeding shall reimburse the "prevailing" party for all reasonable costs of
the arbitration proceeding, including, but not necessarily limited to,
reasonable attorney's fees, arbitrator's fees, deposition expense, photocopy
expense, and the like, and in addition, the prevailing party shall be
reimbursed for funds advanced under protest with respect to the disputed matter
under any provision of this Agreement, as well as interest at the Reference
Rate on any such funds advanced. Judgment on the arbitrator's decision can be
entered in an appropriate court of jurisdiction.
16. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, heirs and assigns except that Eizenga may not assign or transfer
his rights hereunder without the prior written consent of NSU and the Company.
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<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Agreement the date
above first written.
NORTH STAR UNIVERSAL, INC.
By:__________________________
Its _________________________
AMERICABLE, INC.
By:__________________________
Its: ________________________
_____________________________
Gary L. Eizenga
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<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), is made as of May 1, 1992, by and
between Transition Engineering, Inc., a Minnesota corporation (the "Company"),
and Gary M. Doan, an individual resident of Hennepin County, Minnesota
("Executive").
WHEREAS, Executive has been an employee of the Company since 1988; and
WHEREAS, the Company wishes to employ Executive to continue to render
services for the Company on the terms and conditions set forth in this
Agreement, and Executive wishes to be retained and employed by the Company on
such terms and conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, the Company and
Executive agree as follows:
1. Employment. The Company hereby employs Executive, and Executive
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. Term. Unless terminated at an earlier date in accordance with
Section 9 of this Agreement, the term of Executive's employment hereunder shall
commence on the date of this Agreement and continue until December 31, 1994.
Thereafter, the term of this Agreement shall be automatically extended for
successive one (l) year periods unless either party objects to such extension
by written notice to the other party at least 60 days prior to the end of the
initial term or any extension term.
3. Position and Duties.
3.01 Service with Company. During the term of this Agreement,
Executive agrees to perform such reasonable employment duties as the Board of
Directors of the Company shall assign to him from time to time. Executive also
agrees to serve, for any period for which he is elected, as an officer or
director of the Company; provided, however, that Executive shall not be
entitled to any additional compensation for serving as an officer or director.
3.02 Performance of Duties. Executive agrees to serve the Company
faithfully and to be the best of his ability and to devote his full time,
attention and efforts to the business and affairs of the Company during the
term of this
<PAGE> 2
Agreement. Executive hereby confirms that he is under no contractual
commitments inconsistent with his obligations set forth in this Agreement, and
that during the term of this Agreement, he will not render or perform services
for any other corporation, firm, entity or person which are inconsistent with
the provisions of this Agreement.
4. Compensation.
4.01. Base Salary. As compensation in full for all services to be
rendered by Executive under this Agreement, the Company shall pay to Executive
a base salary of $85,000 per year, which salary shall be paid on a bi-weekly
(every two weeks) basis in accordance with the Company's normal payroll
procedures and policies.
4.02 Incentive Compensation. In addition to the base salary
described in Section 4.01, Executive shall be eligible to participate in any
incentive compensation plans that may be established by the Board of Directors
of the Company from time to time.
4.03 Annual Bonus. If, during each calendar year 1992, 1993 and
1994, (i) the Company achieves the financial targets set forth on Exhibit A
hereto and (ii) Executive continues to be employed by the Company, pursuant to
the terms of this Agreement, during the full calendar year in question, then
Executive shall, for each year in which such targets are met, be entitled to
receive a bonus based on the formula set forth on Exhibit A, but in no event
shall such bonus for any given year exceed 40% of Executive's base salary for
such year. The bonus shall be paid on March 15, in the year following the
achievement of the targets. At least 60 days prior to the end of each calendar
year beginning in 1994, the Company and Executive shall establish a financial
target for such year and, if such target is met, Executive shall likewise
receive a bonus based on a formula to be established by Executive and the
Company. In the event of any disagreement regarding the calculation of the
amount of the bonus for Executive, the determination of the Board of Directors
of the Company shall control.
4.04 Participation in Benefit Plans. Executive shall also be
entitled to participate in all employee benefit plans or programs (including
vacation time) of the Company to the extent that his position, title, tenure,
salary, age, health and other qualifications make him eligible to participate.
The Company does not guarantee the adoption or continuance of any particular
employee benefit plan or program during the term of this Agreement, and
Executive's participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto.
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<PAGE> 3
4.05 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentment of
appropriate receipts in accordance with the Company's normal policies for
expense verification.
5. Confidential Information. Except as permitted or directed by the
Company's Board of Directors, during the term of this Agreement or at any time
thereafter Executive shall not divulge, furnish or make accessible to anyone or
use in any way (other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of the Company
that Executive has acquired or become acquainted with or will acquire or become
acquainted with prior to the termination of the period of his employment by the
Company (including employment by the Company or any affiliated companies prior
to the date of this Agreement), whether developed by himself or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company and represents a substantial
investment of time and expense by the Company and its predecessors, and that
any disclosure or other use of such knowledge or information other than for the
sole benefit of the Company would be wrongful and would cause irreparable harm
to the Company. Both during and after the term of this Agreement, Executive
will refrain from any acts or omissions that would reduce the value of such
knowledge or information to the Company. The foregoing obligations of
confidentiality, however, shall not apply to any knowledge or information that
is now published or that subsequently becomes generally publicly known in the
form in which it was obtained from the Company, other than as a direct or
indirect result of the breach of this Agreement by Executive.
6. Ventures. If, during the term of this Agreement, Executive is
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in such project, program or venture shall belong to the Company. Except
as formally approved by the Company's Board of Directors, Executive shall not
be entitled to any interest in such project, program or venture or to any
commission, finder's fee or other compensation in connection therewith other
than the salary to be paid to Executive as provided in this Agreement.
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<PAGE> 4
7. Noncompetition Covenant.
7.01 Agreement Not to Compete. Executive agrees that, during the
term of his employment by the Company and for a period of (i) twelve months
after termination of such employment, if such termination is effected pursuant
to subparagraphs (ii), (iii) or (iv) of Section 9(b) hereof or (ii) six months
after termination of such employment, if such termination is effected pursuant
to Section 9(c) hereof, he shall not, directly or indirectly, engage in
competition with the Company in any manner or capacity (e.g., as an advisor,
principal, agent, partner, officer, director, stockholder, employee, member of
any association, or otherwise) in any phase of the business which the Company
is conducting during the term of this Agreement, including the design,
development, manufacture or selling of devices or components related to the
products or services being sold by the Company or solicit from the Company's
customers any business that the Company is capable of performing during the
term of this Agreement or at the time of Executive's termination. In the event
of termination of Executive's employment pursuant to Section 2 hereof or
pursuant to Section 9(b)(i) hereof, Executive's obligations pursuant to this
Section 7.01 shall terminate upon his termination of employment.
7.02 Geographic Extent of Covenant. The obligations of Executive
under Section 7.01 shall apply to any domestic or foreign city in which the
Company
(a) has engaged in business during the term of this Agreement through
production, promotional, sales or marketing activity, or otherwise, or
(b) has otherwise established its goodwill, business reputation, or any
customer or supplier relations.
7.03 Limitation on Covenant. Ownership by Executive, as a passive
investment, of less than five percent (5%) of the outstanding shares of capital
stock of any corporation listed on a national securities exchange or publicly
traded in the over-the-counter market shall not constitute a breach of this
Section 7.
7.04 Indirect Competition. Executive further agrees that, during
the term of this Agreement, he will not, directly or indirectly, assist or
encourage any other person in carrying out, directly or indirectly, any
activity that would be prohibited by the above provisions of this Section 7, if
such activity were carried out by Executive, either directly or indirectly; and
in particular Executive agrees that he will not, directly or indirectly, induce
any employee of the Company to carry out, directly or indirectly, any such
activity.
7.05 Other Employees. Executive further agrees that, both during
the term of this Agreement and for a period of twelve months following
termination of
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<PAGE> 5
his employment, he will not attempt to persuade officers or employees of the
Company to leave the employ of the Company.
8. Patent and Related Matters.
8.01 Disclosure and Assignment. Executive will promptly disclose
in writing to the Company complete information concerning each and every
invention, discovery, improvement, device, design, apparatus, practice,
process, method or product, whether patentable or not, made, developed,
perfected, devised, conceived or first reduced to practice by Executive, either
solely or in collaboration with others, during the term of this agreement, or
within six months thereafter, whether or not during regular working hours,
relating either directly or indirectly to the business, products, practices or
techniques of the Company (hereinafter referred to as "Developments").
Executive, to the extent that he has the legal right to do so, hereby
acknowledges that any and all of said Developments are the property of the
Company and hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of such
Developments.
8.02 Future Developments. As to any future Developments made by
Executive which relate to the business, products or practices of the Company
and which are first conceived or reduced to practice during the term of this
Agreement, or within six months thereafter, but which are claimed for any
reason to belong to an entity or person other than the Company, Executive will
promptly disclose the same in writing to the Company and shall not disclose the
same to others if the Company, within twenty (20) days thereafter, shall claim
ownership of such Developments under the terms of this Agreement. If the
Company makes such claim, Executive agrees that, insofar as the rights (if any)
of Executive are involved, it will be settled by arbitration in accordance with
the rules then obtaining of the American Arbitration Association. The locale
of the arbitration shall be Minneapolis, Minnesota. If the Company makes no
such claim, Executive hereby acknowledges that the Company has made no promise
to receive and hold in confidence any such information disclosed by Executive.
8.03 Limitation on Sections 8.01 and 8.02. The provisions of
Sections 8.01 and 8.02 shall not apply to any Development meeting the following
conditions:
(a) such Development was developed entirely on Executive's own
time; and
(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information; and
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<PAGE> 6
(c) such Development does not relate (i) directly to the business
of the Company, or (ii) to the Company's actual or demonstratably
anticipated research or development; and
(d) such Development does not result from any work performed by
Executive for the Company.
8.04 Assistance of Executive. Upon request and without further
compensation therefor, but at no expense to Executive, and whether during the
term of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful oaths and the
giving of testimony, that in the opinion of the Company, its successors and
assigns, may be necessary or desirable in obtaining, sustaining, reissuing,
extending and enforcing United States and foreign Letters Patent, including,
but not limited to, design patents, on any and all of such Developments, and
for perfecting, affirming and recording the Company's complete ownership and
title thereto, and to cooperate otherwise in all proceedings and matters
relating thereto.
8.05 Records. Executive will keep complete, accurate and authentic
accounts, notes, data and records of all Developments in the manner and form
requested by the Company. Such accounts, notes, data and records shall be the
property of the Company, and, upon its request, Executive will promptly
surrender same to it or, if not previously surrendered upon its request or
otherwise, Executive will surrender the same, and all copies thereof, to the
Company upon the conclusion of his employment.
8.06 Obligations, Restrictions and Limitations. Executive
understands that the Company may enter into agreements or arrangements with
agencies of the United States Government, and that the Company may be subject
to laws and regulations which impose obligations, restrictions and limitations
on it with respect to inventions and patents which may be acquired by it or
which may be conceived or developed by employees, consultants or other agents
rendering services to it. Executive agrees that he shall be bound by all such
obligations, restrictions and limitations applicable to any such invention
conceived or developed by him during the term of this Agreement and shall take
any and all further action which may be required to discharge such obligations
and to comply with such restrictions and limitations.
9. Termination.
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<PAGE> 7
9.01 Grounds for Termination. This Agreement shall terminate prior
to the expiration of the initial term set forth in Section 2 or any extension
thereof in the event that at any time during such initial term or any extension
thereof:
(a) Executive shall die.
(b) The Board of Directors of the Company shall
determine that:
(i) Executive has become disabled,
(ii) Executive has breached this Agreement in any
material respect, which breach is not cured
by Executive or is not capable of being
cured by Executive within thirty (30) days
after written notice of such breach is
delivered to Executive,
(iii) Executive has engaged in willful and
material misconduct, including willful and
material failure to perform his duties as an
officer or employee of the Company and
including illegal or dishonest acts, or
(iv) Executive has breached his duty of loyalty
to the Company.
(c) Executive is otherwise terminated by the Company (the
right to terminate Executive at any time, with or without
cause, is expressly reserved by the Company and
acknowledged by Executive, subject to the Company's
obligations pursuant to Section 10.01 hereof, if
applicable).
Notwithstanding any termination of this Agreement, Executive, in consideration
of his employment hereunder to the date of such termination, shall remain bound
by the provisions of this Agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Executive's
employment.
9.02 "Disability" Defined. The Board of Directors may determine
that Executive has become disabled, for the purpose of this Agreement in the
event that Executive shall fail, because of illness or incapacity, to render
services of the character contemplated by this Agreement over a period of 90
days during any one year period. The existence or nonexistence of grounds for
termination of this Agreement for any reason under Section 9.01(b)(i) will be
determined in good faith
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<PAGE> 8
by the Board of Directors after notice in writing given to Executive at least
thirty (30) days prior to such determination. During such thirty (30) day
period, Executive shall be permitted to make a presentation to the Board of
Directors for its consideration.
9.03 Surrender of Records and Property. Upon termination of his
employment with the Company, Executive shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, which in any of these cases are in
his possession or under his control.
10. Severance.
10.01 Severance Payments. In the event that the Company terminates
Executive pursuant to paragraph (c) of Section 9 hereof (but not in the event
that Executive terminates his employment or Executive's employment is
terminated pursuant to Section 2 hereof or paragraphs (a) or (b) of Section 9
hereof), the Company shall pay to Executive his base salary, as then in effect,
for a period of six months following the date of termination. Executive
acknowledges and agrees that his sole right to receive compensation pursuant to
this Agreement following any termination shall be limited to the severance
payments described in this Section 10.01.
11. Miscellaneous.
11.01 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of
Minnesota.
11.02 Prior Agreements. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings, whether oral or written, with respect
to Executive's employment with the Company and any rights to acquire an
interest in the Company, specifically including that certain Transition
Engineering, Inc. Employment Agreement, dated January 29, 1988, that may or may
not have been executed by Executive and the Company, but which Executive and
the Company agree is hereby terminated, void and of no further force or effect.
Except for that certain Stock Option Agreement, of even date herewith, between
the Company and Executive, the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
that are not set forth herein.
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<PAGE> 9
11.03 Withholding Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or governmental regulation or ruling.
11.04 Amendments. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by the parties
hereto.
11.05 No Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any
written waiver shall not be deemed a continuing waiver unless specifically
stated, shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as to
any act other than that specifically waived.
11.06 Severability. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect. In furtherance and not in limitation
of the foregoing, should the duration or geographical extent of, or business
activities covered by, any provision of this Agreement be in excess of that
which is valid and enforceable under applicable law, then such provision shall
be construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
11.07 Assignment. This Agreement shall not be assignable, in whole
or in part, by either party without the written consent of the other party,
except that the Company may, without the consent of Executive, assign its
rights and obligations under this Agreement to (i) any corporation, firm or
other business entity which controls the Company, specifically including
Americable, Inc., presently the sole shareholder of the Company, and North Star
Universal, Inc., presently the sole shareholder of Americable, Inc. and (ii)
any corporation, firm or other business entity with or into which the Company
may merge or consolidate, or to which the Company may sell or transfer all or
substantially all of its assets, or of which 50% or more of the equity
investment and of the voting control is owned, directly or indirectly, by, or
is under common ownership with, the Company. After any such
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<PAGE> 10
assignment by the Company, the Company shall be discharged from all further
liability hereunder and such assignee shall thereafter be deemed to be the
Company for the purposes of all provisions of this Agreement including this
Section 11.
11.08 Notices. All communications and notices provided under this
Agreement or any instrument executed pursuant hereto shall be in writing and
sent by first class certified mail, and if to the Company, addressed and
delivered to it at:
Transition Engineering, Inc.
7448 West 78th Street
Minneapolis, MN 55439
With a copy to:
North Star Universal, Inc.
610 Park National Bank Building
5353 Wayzata Boulevard
St. Louis Park, Minnesota 55416
Attention: President
and if addressed or delivered to Executive at:
Gary M. Doan
7244 York Avenue, No. 223
Edina, MN 55435
or to any party at such other address as may be designated by such party in a
notice to the other parties. Any notice, if mailed properly addressed, shall
be deemed given on the third business day after mailing postage prepaid.
11.09 Injunctive Relief. Executive agrees that it would be
difficult to compensate the Company fully for damages for any violation of the
provisions of this Agreement, including without limitation the provisions of
Sections 5, 7, 8 and 9.03. Accordingly, Executive specifically agrees that the
Company shall be entitled to temporary and permanent injunctive relief to
enforce the provisions of this Agreement and that such relief may be granted
without the necessity of proving actual damages. This provision with respect
to injunctive relief shall, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
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<PAGE> 11
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement
as of the date set forth in the first paragraph.
TRANSITION ENGINEERING, INC.
By: /s/
-----------------------------
/s/ Gary M. Doan
-----------------------------
Gary M. Doan
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<PAGE> 12
EMPLOYMENT AGREEMENT
"EXHIBIT A"
<TABLE>
<CAPTION>
MAXIMUM BONUS AS
PERCENTAGE OF A PERCENTAGE OF
TARGET ACHIEVED BASE SALARY
--------------- -----------------------------
<S> <C>
Less than 80% 0%
80 - 100% 0 - 10%
101 - 120% 11 - 20%
121 - 130% 21 - 30%
131 - 140% 31 - 40%
</TABLE>
Target operating profit for the twelve months ended December 31,
<TABLE>
<S> <C>
1992 . . . . . . . . . . . . . . $750 000
1993 . . . . . . . . . . . . . . The greater of $900,000 or
125% of the actual operating
profit for 1992.
1994 . . . . . . . . . . . . . . The greater of $1,125,000 or
125% of the actual operating
profit for 1993.
</TABLE>
Operating profit is defined as Revenues less all costs except for internal
interest allocations in excess of $30,000 for 1992, federal and state income
taxes and gains on the sale of assets. Internal interest allocations for 1993
and 1994 will be based on market rates and additional capital invested by
Americable Inc. or North Star Universal, Inc. in the Company.
<PAGE> 1
EXHIBIT 10.18
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made as of the 1st day of
May, 1992, by and between Transition Engineering, Inc., a Minnesota corporation
(the "Company"), and Gary M. Doan ("Doan").
WITNESSETH;
WHEREAS, contemporaneously with the execution of this Agreement, the
Company and Doan have entered into an Employment Agreement of even date
herewith;
WHEREAS, as an additional incentive to Doan, the Company wishes to enter
into this Agreement whereby Doan is awarded an option (the "Option") to
purchase up to 4.5% of the Company's common stock, $.01 par value per share
(the "Common Stock"); and
WHEREAS, as of the date hereof, the capitalization of the Company consists of
1,000 shares of Common Stock, all of which is issued to Americable, Inc., a
Minnesota Corporation ("Americable"), a wholly owned subsidiary of North Star
Universal, Inc., also a Minnesota corporation ("North Star").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
1. Purpose. This Agreement is intended to advance the interests of the
Company and its shareholder, Americable, by encouraging and enabling Doan, upon
whose judgment, initiative and effort the Company is largely dependent for the
successful conduct of its business, to acquire and retain a proprietary
interest in the Company by ownership of its Common Stock. The Option granted
under this Agreement is intended to be an option which does not meet the
requirements of Section 422A of the Internal Revenue Code of 1986 (the "Code").
2. Definitions: As used throughout this Agreement, the terms defined
below shall have the following meanings, respectively (such definitions to be
equally applicable to the singular and plural forms thereof):
(a) "Book Value" shall mean the assets of the Company, less its
liabilities (but excluding long term liabilities owed to Americable, North Star
or other Affiliates of the Company), all as determined by generally accepted
accounting principles.
(b) "Book Value Per Share" shall mean the Book Value, divided by
the then outstanding number of shares of Common Stock.
<PAGE> 2
(c) "Corporate Transaction" shall mean:
(i) a merger or acquisition in which the Company is not
the surviving entity, except for a transaction (i) the principal purpose of
which is to change the State of the Company's incorporation or (ii) with or
involving an Affiliate of the Company, Americable or North Star;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company except to an Affiliate of the
Company, Americable or North Star; or
(iii) any other corporate reorganization or business
combination in which more than fifty percent (50%) of the Company's outstanding
voting stock is transferred to different holders in a single transaction or a
series of related transactions (such a transfer of the voting stock of
Americable or North Star shall not, however, constitute a Corporate Transaction
for purposes of this Agreement), except (A) to an Affiliate of the Company,
Americable or North Star or (B) as part of a public offering of the Company's
Common Stock.
(d) "Employment Agreement" shall mean the Employment Agreement
between Doan and the Company of even date herewith.
(e) "Initial Public Offering" shall mean the first public offering
of the Company's Common Stock registered with the Securities and Exchange
Commission or the securities division of any state, or an offering made to the
public pursuant to an exemption from registration.
(f) "Shares" shall mean shares of Common Stock of the Company.
(g) "Subsidiary" or "Subsidiaries" means a subsidiary corporation
or corporations as defined in Section 425 of the Code.
(h) "Successor" means the legal representative of the estate of
Doan or the person or persons who acquire the right to exercise the Option by
bequest or inheritance or by reason of the of death of Doan.
(i) "Affiliate" shall include, with respect to any party, any
Person which directly or indirectly controls, is controlled by, or is under
common control with such party.
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<PAGE> 3
(j) "Person" shall mean any natural person, corporation, firm,
association, partnership, joint venture, government, governmental agency or any
other entity, whether acting in an individual fiduciary or other capacity.
(k) "Disability" or "Disabled" shall have the same meaning as
defined in the "Employment Agreement".
3. Grant of Option. The Company hereby grants to Doan an option (the
"Option") to purchase up to Forty-seven (47) Shares of the Company's Common
Stock, which the Board of Directors of the Company has reserved for issuance
pursuant hereto (such Shares constituting, in the aggregate, approximately 4.5%
of the then outstanding Shares of the Company).
4. Exercise of Option.
(a) Exercise Dates. Except as otherwise provided in this
Section 4, this Option shall only be exercisable under the following schedule,
each date being hereinafter referred to as an "Exercise Date".
<TABLE>
<CAPTION>
Exercise Date Number of Shares Exercisable
--------------------------------------------------------------------
<S> <C>
May 1, 1992 27
December 31, 2001 20
</TABLE>
(b) Exercise Price. The per Share exercise price of the
Option (the "Exercise Price") shall be the Book Value per Share as of March 31,
1992, which the Board of Directors of the Company has determined to be One
Thousand Four Dollars ($1,004.00) per Share, and which the Board of Directors
has determined to be the fair market value per share of Common Stock on the
date of grant.
(c) Full-time Employment Necessary. Except as provided in
Section 4(d), Doan must be a full-time employee of the Company (within the
terms of the Employment Agreement) from the effective date of this Agreement
through each of the Exercise Dates specified in subsection (a) above, in order
to exercise the Option with respect to the applicable Shares on each respective
Exercise Date.
(d) Duration of Options. Each portion of the Option herein
granted is exercisable on its respective Exercise Date as set forth in Section
4(a) (and subject to acceleration of the Exercise Date as provided in Section
4(e) hereof), and shall be exercisable until April 30, 2002, except as provided
in Section 5(a) and except that in the event of Doan's termination of
employment (regardless of the reason for termination), death, or disability,
that portion of the Option which was otherwise exercisable as of the date of
termination, death, or permanent disability or which
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<PAGE> 4
otherwise becomes exercisable within ninety (90) days of such date, may be
exercised for a period of ninety (90) days following the date of termination,
death or disability, or until May 31, 2002, whichever date first occurs.
(e) Acceleration of Portion of Option. In the event that the
Company achieves 100% of the financial target during 1992, as set forth on
Exhibit A to the Employment Agreement, then one-half (ten shares) of the Shares
subject to the portion of the Option which becomes exercisable December 31,
2001 shall become immediately exercisable March 15, 1993; subject, however, to
all of the terms and conditions set forth herein with respect to the Option.
In the event that the Company achieves 100% of the financial target during
1993, as set forth on Exhibit A to the Employment Agreement, then one-half (ten
shares) of the shares subject to the portion of the Option which becomes
exercisable December 31, 2001 shall become immediately exercisable March 15,
1994; subject, however, to all of the terms and conditions set forth herein
with respect to the Option.
(f) Adjustment. This Option and each separately exercisable
portion thereof shall be subject to adjustment as provided in Section 5(a).
(g) Vesting of Shareholder Rights. Neither Doan nor his
Successor shall have any of the rights of a shareholder of the Company
untilDoan or hisSuccessor exercises theOption or portionthereof as
providedherein and paysthe fullconsideration for allShares purchased.
(h) Nontransferability of Option. The Option shall not be
transferable or assignable by Doan, otherwise than by will or by laws of
descent and distribution and the Option and each portion thereof shall be
exercisable, during Doan's lifetime, only by him. The Option shall not be
pledged or hypothecated in any way and the Option shall not be subject to
execution, attachment, or similar process.
5. Adjustments
(a) In the event that following a recapitalization,
reclassification, stock split-up, combination of shares, or dividend or other
distribution payable in capital stock, the outstanding Shares of Common Stock
of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares of other securities of the
Company or of another corporation, appropriate adjustment shall be made by the
Board of Directors of the Company in the number and kind of shares as to which
this Option, or portions thereof then unexercised, shall be exercisable, to the
end that the proportionate interest of the holder of the Option shall, to the
extent practicable, be maintained as before the occurrence of such event. Such
adjustment in outstanding options shall be made without change
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<PAGE> 5
in the total price applicable to the unexercised portion of the Option but with
a corresponding adjustment in the Exercise Price per share.
(b) In the event of the dissolution or liquidation of the
Company or a Corporate Transaction, the Option granted under this Agreement
shall terminate as of the effective date of such dissolution, liquidation or
Corporate Transaction as determined by the Board of Directors of the Company
(the "Option Termination Date"), provided that not less than 30 days' written
notice of the Option Termination Date so fixed shall be given to Doan, and Doan
shall have the right prior to the Option Termination Date to exercise the
Option granted hereunder to the extent such Option is then, or will become
prior to the Option Termination Date exercisable, but less any Shares
previously purchased pursuant to the Option, subject to adjustments.
(c) If the Company is a party to any merger or other business
combination, which does not constitute a Corporate Transaction, then this
Option, if outstanding immediately after such merger or other business
combination, shall be appropriately adjusted, by the Board of Directors of the
surviving entity, to apply and pertain to the number and class of securities
that would be issuable to Doan in the consummation of such merger or business
combination if the Option were exercised immediately prior to such merger or
business combination, and appropriate adjustments shall also be made to the
Option Exercise Price, provided the aggregate Exercise Price payable hereunder
shall remain the same.
(d) This Agreement shall not in any way affect the right of
the Company to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
6. Method of Exercising Option.
(a) In order to exercise the Option or any part thereof Doan
(or, in the case of exercise after his death, his Successor) must take the
following actions:
(i) Execute and deliver to the Company a Stock Purchase
Agreement in the form of Exhibit A to this Agreement (the "Stock Purchase and
Shareholder's Agreement," hereinafter the "Purchase Agreement," which Purchase
Agreement the Company also agrees to execute and deliver to Doan.
(ii) Pay the aggregate Option Exercise Price for the purchased
Shares in cash.
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<PAGE> 6
(iii) Furnish to the Company appropriate documentation
that the person or persons exercising the Option, if other than Doan, have the
right to exercise the Option.
(b) This Option shall be deemed to have been exercised with
respect to the number of Shares specified in the Purchase Agreement at such
time as the executed Purchase Agreement for such Shares shall have been
delivered to the Company. Payment of the Option Exercise Price for the Shares
shall immediately become due and shall accompany the Purchase Agreement. As
soon thereafter as practical, the Company shall mail or deliver to Doan or to
the other person or persons exercising the Option a certificate or certificates
representing the Shares so purchased and paid for, with the appropriate legends
affixed thereto.
(c) In no event may the Option be exercised for any
fractional Shares.
7. Compliance with Laws and Regulations.
(a) The exercise of the Option and the issuance of Shares
upon such exercise shall be subject to compliance by the Company and Doan with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of the Option Doan shall
execute and deliver to the Company such representations in writing as may be
reasonably requested by the Company in order for it to comply with the
applicable requirements of federal and state securities laws.
8. Waivers, Amendments. etc. No amendment to or waiver of any
provision of this Agreement shall be binding unless in writing and executed by
the Company (with the approval of the Board of Directors of the Company) and
Doan. No failure or delay on the part of any party in exercising any power or
right under this Agreement or any instrument executed pursuant hereto shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power or right preclude any other or further exercise of any such power or
right.
9. Notices. All communications and notices provided under this
Agreement or any instrument executed pursuant hereto shall be in writing and
sent by first class certified mail, and if to the Company, addressed and
delivered to it at:
Transition Engineering, Inc.
7448 West 78th Street
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<PAGE> 7
Minneapolis, MN 55439
With a copy to:
North Star Universal, Inc.
610 Park National Bank Building
5353 Wayzata Boulevard
St. Louis Park, Minnesota 55416
Attention: President
and if addressed or delivered to Doan at:
Gary M. Doan
7244 York Avenue, No. 223
Edina, MN 55435
or to any party at such other address as may be designated by such party in a
notice to the other parties. Any notice, if mailed properly addressed, shall
be deemed given on the third business day after mailing postage prepaid.
10. Severability. Any provision of this Agreement or any
instrument executed pursuant hereto which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability of such provision in any other
jurisdiction.
11. Cross References. References in this Agreement or in any
instrument executed pursuant hereto to any section or article are, unless
otherwise specified, to such section or article of this Agreement or such
instrument, as the case may be.
12. Headings. The various headings of this Agreement and of any
Instrument executed pursuant hereto are inserted for convenience only and shall
not affect the meaning or interpretation of this Agreement of such Instrument
or any provisions hereof or thereof.
13. Counterparts. This Agreement may be executed by the parties
hereto in counterparts, each of which shall be deemed to be an original and all
of which shall constitute together but one and the same agreement.
14. Governing Law. This Agreement, and each other instrument
executed pursuant hereto shall each be governed by and construed in accordance
with, the laws of the State of Minnesota, and Doan submits to the personal
jurisdiction of the
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<PAGE> 8
federal and state courts located in such state in connection with all actions,
matters and disputes in any way related hereto.
15. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors, heirs and assigns except that Doan may not assign or transfer his
rights hereunder without the prior written consent of the Company.
16. Prior Agreements. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings, whether oral or written, with respect
to any right of Doan to acquire an interest in the Company, specifically
including that certain Transition Engineering, Inc. Employment Agreement, dated
January 29, 1988, that may or may not have been executed by Doan and the
Company, but which Doan and the Company agree is hereby terminated, void and of
no further force or effect. Except for that certain Employment Agreement, of
even date herewith, between the Company and Doan, the parties hereto have made
no agreements, representations or warranties relating to the subject matter of
this Agreement that are not set forth herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above first written.
TRANSITION ENGINEERING, INC.
By: /s/
--------------------------------
/s/ Gary M. Doan
--------------------------------
Gary M. Doan
-8-
<PAGE> 9
EXHIBIT A
STOCK PURCHASE AND SHAREHOLDERS' AGREEMENT
This Agreement (this "Agreement') is made as of the _______ day of
____________, 199__, by and between Transition Engineering, Inc., a Minnesota
corporation (the "Company"), and Gary M. Doan ("Doan").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Option Agreement, dated as of May
1, 1992, the Company granted to Doan an option to purchase up to Forty-seven
(47) Shares of the Company's common stock, no par value (the "Common Stock"),
subject to certain adjustments as provided therein;
WHEREAS, with the execution of this Agreement Doan has purchased
___________ Shares of Common Stock pursuant to said Option; and
WHEREAS, the Company, Americable, Inc., a Minnesota corporation
("Americable"), the Company's shareholder, and North Star Universal, Inc., also
a Minnesota corporation ("North Star"), the ultimate parent company of
Americable, and the Company, wish to prevent other persons who may be either
unwilling or unable to contribute to the success of the Company from owning its
Shares, by restricting the ownership thereof in the manner herein provided.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other valuable consideration, the parties agree as follows:
1. Definitions: As used throughout this Agreement, the terms defined
below shall have the following respective meanings (such definitions to be
equally applicable to the singular and plural forms thereof):
(a) "Americable" shall mean Americable, Inc., a Minnesota
corporation, which is a wholly owned subsidiary of North Star and
presently the sole shareholder of the Company.
(b) "Employment Agreement" shall mean the Employment Agreement
between Doan and the Company, dated as of June 1, 1992.
(c) "Instrument" shall mean any document or writing (whether a
formal agreement, letter or otherwise) under which any obligation is
evidenced, assumed or undertaken.
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<PAGE> 10
(d) The term "Involuntary Transfer" means any transfer or
disposition of shares under judicial order, legal process, execution,
attachment, or enforcement of a pledge, trust, or other security interest.
(e) The term "Involuntary Transferee" means any one who acquires
an interest in or title to any Shares by virtue of any Involuntary
Transfer.
(f) The term "Successor" means the legal representative of the
estate of Doan or the person or persons who acquire the right to exercise
an option by bequest or inheritance or by reason of the death of Doan.
(g) The term "Shares" means shares of Common Stock of the Company,
no par value per share and includes the shares presently outstanding and
all common shares which may hereafter be issued by it.
(h) The term "Shareholders" means Americable and Doan, or any
successors.
(i) "Stock Option Agreement" shall refer to the Stock Option
Agreement, dated June 1, 1992, between Doan and the Company.
(j) The terms "Transfer," "Dispose," or any similar term shall
mean any sale, exchange, gift, bequest, pledge, security interest, or
other alienation or disposition of any shares of the Company or any
interest therein, including any distribution by an executor,
administrator, or trustee.
(k) The term "Book Value" shall refer to the assets of the
Company, less its liabilities (but excluding long term liabilities owed to
Americable, North Star or other Affiliates of the Company), all as
determined by generally accepted accounting principals.
(l) The term "Book Value Per Share" shall mean the Book Value of
the Company divided by its then outstanding number of Shares.
(m) The terms "Disability" and "Disabled" shall have the same
meaning as defined in the Employment Agreement.
(n) The term "Initial Public Offering" shall mean the first public
offering of the Company's Shares registered with the Securities and
Exchange Commission or the securities division of any state, or an
offering made to the public pursuant to an exemption from registration.
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<PAGE> 11
(o) The term "Affiliate" shall include, with respect to any party,
any Person which directly or indirectly controls, is controlled by, or is
under common control with such party.
(p) The term "Person" shall mean any natural person, corporation,
firm, association, partnership, joint venture, government, governmental
agency or any other entity, whether acting in an individual, fiduciary or
other capacity.
(q) The term "Corporate Transaction" shall have the same meaning
as defined in Section 2(c) of the Stock Option Agreement.
2. Exercise of Option.
(a) Exercise. Doan hereby purchases ____________ Shares (the
"Purchased Shares") at an exercise price of $______________ per Share,
(the "Exercise Price") pursuant to the Stock Option Agreement.
(b) Payment. Concurrently with the delivery of this Agreement to
the Company, Doan shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Stock Option Agreement and shall
deliver whatever additional documents may be required by the Stock Option
Agreement as a condition for exercise.
3. Investment Representations.
(a) Investment Intent. Doan hereby warrants and represents that
he is acquiring the Purchased Shares for his own account and not with a
view to their resale or distribution and that he is prepared to hold the
Purchased Shares for an indefinite period and has no present intention to
sell, distribute or grant any participating interests in the Purchased
Shares. Doan hereby acknowledges the fact that the Purchased Shares have
not been registered under the Securities Act of 1933, as amended (the
"1933 Act"), and that the Company is issuing the Purchased Shares to him
in reliance on the representations made by him herein.
(b) Restricted Securities. Doan hereby confirms that he has been
informed that the Purchased Shares may not be resold or transferred unless
the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available.
Accordingly, Doan hereby acknowledges that he is prepared to hold the
Purchased Shares for an
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<PAGE> 12
indefinite period and that he is aware that Rule 144, as promulgated under
the 1933 Act, is not presently available to exempt the sale of the
Purchased Shares from the registration requirements of the 1933 Act.
Should Rule 144 subsequently become available, Doan is aware that any sale
of the Purchased Shares effected pursuant to Rule 144 may, depending upon
the status of Doan as an "affiliate" or "non-affiliate" under the rule, be
made only in limited amounts in accordance with the provisions of the
rule, and that in no event may any Purchased Shares be sold pursuant to
Rule 144 until Doan has held the Purchased Shares for the requisite
holding period following payment of the Option Price for the Purchased
Shares.
4. Restrictions on Sale or Transfer.
(a) General Prohibition on Transfer. Until such time as the
Company has successfully completed an Initial Public Offering, neither
Doan, his Successor, or his Involuntary Transferee shall dispose of,
encumber, or transfer any of the Company's Shares now owned or in the
future acquired, without the Company's prior written consent and the
Shares must be transferred as set forth in subparagraph (b) below. Any
purported transfer or disposition of Shares in violation of the terms of
this Agreement shall be void, and the Company shall not recognize or give
any effect to such transaction.
(b) Granting of Certain Purchase and Sale Rights Regarding the
Shares.
(i) Type A Events - Procedures.
(A) Type A Events. Upon the occurrence of any of the
following ("Type A Events"):
(1) death of Doan;
(2) disability of Doan;
(3) any termination of Doan's employment with the
Company after December 31, 1994, except for termination
by the Company pursuant to Section 9.01(b)(ii), (iii) or
(iv) of the Employment Agreement;
(4) any termination of Doan's employment with the
Company on or before December 31, 1994, if such
termination
-12-
<PAGE> 13
is made by the Company pursuant to Section 9.01(c) of the
Employment Agreement; and
(5) delivery to Doan of written notice from the
Company of an impending Corporate Transaction, which
shall be provided not later than thirty (30) days prior
to the good faith estimated effective date thereof;
provided, however, that the Put sale right granted to
Doan and his Successor and the Call purchase right
granted to the Company shall be exercised not later than
5 days prior to the effective date of the Corporate
Transaction as set forth in the written notice to Doan
and shall be closed and payment in full received by the
appropriate party on or before the effective date of the
Corporate Transaction referred to in such notice,
then (y) Doan or his Successor will have the right to sell
(hereinafter referred to as "Put") to the Company, all of the
Shares then held or purchasable by Doan or his Successor in
which case the Company will be obligated to purchase such
Shares, and (z) the Company shall have the right to purchase
(hereinafter referred to as "Call") from Doan or his Successor
all of the Shares then held or purchasable by Doan or his
Successor, in which case Doan or his Successor will be
obligated to sell such Shares.
(B) Price. The per Share price of the Put and Call
rights of the parties upon the occurrence of a Type A Event
(the "Type A Event Price") shall be the Book Value Per Share
as of the last day of the month prior to the occurrence of the
Type A Event.
(C) Exercise of Put. Doan, or his Successor shall
have ninety days following the occurrence of a Type A Event,
except as otherwise provided in Section 3(b)(i)(A)(5), to
exercise the Put by forwarding written notice to the Company.
(D) Exercise of Call. The Company shall have ninety
days following the occurrence of a Type A Event, except as
otherwise provided in Section 3(b)(i)(A)(5) (the "Call
Period") to exercise the Call by forwarding written notice to
Doan or his Successor. Pursuant to the Call purchase right of
the Company, the Company shall have the right at any time
during the Call Period to purchase the Shares held by Doan or
his Successor, and the portion of the Option then exercisable
but which is unexercised. The purchase
-13-
<PAGE> 14
price for the Option shall be the product of (i) the number of
Shares that may be purchased pursuant to that portion of the
Option that is then exercisable (less any Shares previously
purchased pursuant to the exercise of the Option) times (ii)
the difference of (A) the per Share Purchase Price of the Call
purchase right minus (B) the per Share Exercise Price (or
weighted average thereof) of the portion of the Option then
exercisable but unexercised.
(E) Payment and Closing. Subject to the requirements
of Section 3(b)(i)(A)(5), the parties shall close the purchase
within 60 days of the exercise of the Put or Call, and the
Company shall pay the full purchase price at the closing.
(F) Lapse. The Put sale right and Call purchase right
shall terminate whether or not it has then become exercisable,
on the date of closing of the Initial Public Offering.
(ii) Type B Events - Procedures.
(A) Type B Events. Upon the occurrence of any of the
following ("Type B Events"):
(1) any termination of Doan's employment with the
Company on or before December 31, 1994, except for any
termination which constitutes a Type A Event;
(2) any termination of Doan's employment with the
Company, after December 31, 1994, if such termination is
made by the Company pursuant to Section 9.01(b)(ii),
(iii) or (iv) of the Employment Agreement,
then (i) Doan or his Successor will have the right to sell
(hereinafter referred to as "Put") to the Company, all of the
Shares then held or purchasable by Doan or his Successor in
which case the Company will be obligated to purchase such
Shares, and (ii) the Company shall have the right to purchase
(hereinafter referred to as the "Call") from Doan or his
Successor all of the Shares then held or purchasable by Doan
or his Successor, in which case Doan or his Successor will be
obligated to sell such Shares.
(B) Price. The price per Share of the Put and Call
rights of the parties upon the occurrence of a Type B Event
shall be the applicable
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<PAGE> 15
Exercise Price, as defined in the Stock Option Agreement, paid
by Doan with respect to the Shares.
(C) Exercise of Put. Doan, or his Successor shall
have ninety days following the occurrence of a Type B Event to
exercise the Put sale right by forwarding written notice to
the Company.
(D) Exercise of Call. The Company shall have ninety
days following the occurrence of a Type B Event to exercise
the Call purchase right by forwarding written notice to Doan
or his Successor. Pursuant to the Call purchase right of the
Company, the Company shall have the right at any time during
the Call Period to purchase the Shares held by Doan or his
Successor and the portion of the Option then exercisable but
which is unexercised. The purchase price for the portion of
the Option then exercisable but unexercised shall be $1.00.
(E) Payment and Closing. The Company and Doan shall
close the purchase within 60 days of the exercise of the Put
or Call, and the Company shall pay the full purchase price at
closing.
(F) Lapse. The Put and Call shall, terminate whether
or not it has then become exercisable, on the date of closing
of the Initial Public Offering.
(iii) Involuntary Transfer. In the case of an
Involuntary Transfer from Doan at any time prior to the completion
of an Initial Public Offering, the Involuntary Transferee, shall,
within thirty days of the Involuntary Transfer, offer to sell all of
the Shares acquired to the Company. The offer shall be at the
applicable Exercise Price per Share. The Company shall close the
purchase within 60 days of the offer, and shall pay the full
purchase price at the closing.
5. Delivery of Shares and Documents. At the closing of any sale,
hereunder, the seller shall deliver to the Company, in exchange for the
Company's payment, the certificates for the transferred Shares endorsed for
transfer. In addition, the seller shall deliver to the Company all documents
reasonably required by the Company's counsel including, without limitation,
assignments, certificates of authority, tax releases, consents to transfer
instruments, and evidence of the seller's title and of his compliance with this
Agreement.
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<PAGE> 16
6. Specific Performance. The Shareholder(s) then holding Shares may
institute and maintain a proceeding to compel specific performance against an
Involuntary Transferee or any other person who fails, after 30 days' notice, to
comply with the terms of this Agreement. For purposes of this provision, such
default shall occur in any of the following cases: the person fails to give a
notice, make an offer, sell Shares, or close a sale; an Involuntary Transferee
fails to disclose that Shares were acquired; the person fails to disclose to
the Shareholder(s) then holding Shares the name of anyone to whom and terms on
which he has transferred or disposed of the Shares.
7. Endorsement on Certificates of Terms of this Agreement. Each
certificate for Shares now held or hereafter issued shall be endorsed as
follows:
"Any transfer or disposition of the Shares evidenced by this
certificate is subject to the restrictions and option stated in, and
such Shares are transferable only upon compliance with, the
provisions of an agreement dated as of April 1, 1992, between the
Company and all of its shareholders. A copy of such agreement is on
file at the office of the Company and the provisions thereof are
incorporated herein by reference."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold or offered for sale in the absence of
(a) an effective registration statement for the shares under such
Act, (b) a 'no action' letter of the Securities and Exchange
Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Company that registration under such Act is not
required with respect to such sale or offer."
8. Terms of Agreement. This Agreement shall remain in force until
terminated in writing by all of the Shareholders then holding shares.
9. Waivers, Amendments, etc. No amendment to or waiver of any
provision of this Agreement shall be binding unless in writing and executed by
the Company and Doan. No failure or delay on the part of any party in
exercising any power or right under this Agreement or any Instrument executed
pursuant hereto shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise of any such power or right.
-16-
<PAGE> 17
10. Notices. All communications and notices provided under this
Agreement or any Instrument executed pursuant hereto shall be in writing and
sent by first class certified mail and if to the Company addressed or delivered
to it at:
Transition Engineering, Inc.
7448 West 78th Street
Minneapolis, MN 55439
With copy to:
North Star Universal, Inc.
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
Attention: President
and if addressed or delivered to Doan at:
Gary M. Doan
7244 York Avenue, No. 223
Edina, MN 55435
or to any party at such other address as may be designated by such party in a
notice to the other parties. Any notice, if mailed properly addressed, shall
be deemed given on the third business day after mailing postage prepaid.
11. Severability. Any provision of this Agreement or any Instrument
executed pursuant hereto which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability of such provision in any other
jurisdiction.
12. Cross-References. References in this Agreement or in any Instrument
executed pursuant hereto to any section or article are, unless otherwise
specified, to such section or article of this Agreement or such Instrument, as
the case may be.
13. Headings. The various headings of this Agreement and of any
Instrument executed pursuant hereto are inserted for convenience only and shall
not affect the meaning or interpretation of this Agreement of such Instrument
or any provisions hereof or thereof.
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<PAGE> 18
14. Counterparts, Effectiveness, etc. This Agreement may be executed
by the parties hereto in counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
15. Governing Law. This Agreement, and each other instrument executed
pursuant hereto shall each be governed by and construed in accordance with, the
laws of the State of Minnesota and Doan submits to the personal jurisdiction of
the federal and state courts located in such state in connection with all
actions, matters and disputes in any way related hereto.
16. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, heirs and assigns. Doan hereby expressly acknowledges that the
Company may assign any of its rights or obligations hereunder to Americable or
North Star.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above first written.
TRANSITION ENGINEERING, INC.
By: __________________________________
Its: _____________________________
______________________________________
Gary M. Doan
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<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our reports dated February 15, 1996 accompanying the combined
financial statements and schedule of ENStar (an operating unit of North Star
Universal, Inc.) included in the Registration Statement of ENStar Inc. on Form
S-4. We hereby consent to the use of the aforementioned reports in the Proxy
Statement of North Star Universal, Inc. forming part of the Registration of
ENStar Inc. on Form S-4 and to the use of our name as it appears under the
caption "Experts."
We have issued our reports dated February 15, 1996 accompanying the
consolidated financial statements and schedule of North Star Universal, Inc.
and Subsidiaries included in the Annual Report on Form 10-K of North Star
Universal, Inc. for the year ended December 31, 1995 incorporated by reference
in the Registration Statement of ENStar Inc. on Form S-4. We hereby consent to
the incorporation by reference of said reports in the Proxy Statement of North
Star Universal, Inc. forming part of the Registration Statement of ENStar Inc.
on Form S-4 and to the use of our name as it appears under the caption
"Experts."
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 15, 1996
We have issued our reports dated February 14, 1996 accompanying the
consolidated financial statements and schedule of Michael Foods, Inc. and
Subsidiaries included in the Annual Report on Form 10-K of Michael Foods, Inc.
for the year ended December 31, 1995 incorporated by reference in the
Registration Statement of ENStar Inc. on Form S-4. We hereby consent to the
incorporation by reference of said reports in the Proxy Statement of North Star
Universal, Inc. forming part of the Registration Statement of ENStar Inc. on
Form S-4 and to the use of our name as it appears under the caption "Experts."
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 14, 1996
<PAGE> 1
EXHIBIT 23.3
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference of our report dated May 10, 1995, with respect
to the financial statements and schedule of CorVel Corporation in the
Registration Statement (Form S-4) and related Prospectus of ENStar Inc. for the
registration of 3,357,400 shares of its common stock.
Orange County, California
March 20, 1996 Ernst & Young LLP
<PAGE> 1
EXHIBIT 23.4
CONSENT OF PIPER JAFFRAY INC.
We hereby consent to the use of our name in the Proxy Statement-Prospectus
of ENStar Inc. and North Star Universal, Inc. forming a part of the
Registration Statement on Form S-4 of ENStar Inc. and to the inclusion of our
opinion as Appendix II to such Proxy Statement-Prospectus.
In giving the foregoing consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules or regulations of the Securities and
Exchange Commission thereunder.
PIPER JAFFRAY INC.
Minneapolis, Minnesota
March 18, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF GOLDSMITH, AGIO, HELMS SECURITIES INC.
We hereby consent to the use of our opinion to the Board of Directors of
North Star Universal, Inc. included as Appendix III to the Proxy
Statement/Prospectus which forms a part of this Registration Statement on Form
S-4 and the reference to our firm under the captions "SUMMARY" and "THE
REORGANIZATION" in such Registration Statement. In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
hereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Goldsmith, Agio, Helms Securities Inc.
March 20, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of Jeffrey J. Michael and Peter E. Flynn,
each with full power to act without the other, his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign the Registration
Statement on Form S-4 relating to the registration under the Securities Act of
1933 of common stock of ENStar Inc., a wholly owned subsidiary of North Star
Universal, Inc. ("NSU"), issuable in connection with the Agreement and Plan of
Reorganization dated as of December 21, 1995 (the "Reorganization Agreement")
providing for the merger of NSU Merger Co., a Delaware corporation and wholly
owned subsidiary of NSU, with and into Michael Foods, Inc., a Delaware
corporation ("Michael") (which Registration Statement shall also contain a
proxy statement/prospectus to be used in connection with the annual meeting of
the NSU shareholders, at which meeting of NSU shareholders will also vote upon
the transactions contemplated by the Reorganization Agreement) and any or all
amendments or post-effective amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and to file the same with such state
commissions and other agencies as necessary, granting unto each such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each such attorney-in-fact and
agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on the
5th day of March, 1996, by the following persons.
/s/ James H. Michael /s/ Miles E. Efron
- ----------------------------- ----------------------------------
James H. Michael Miles E. Efron
/s/ Jeffrey J. Michael /s/ Richard J. Braun
- ----------------------------- ----------------------------------
Jeffrey J. Michael Richard J. Braun
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULES BELOW CONTAIN SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF NSU AND ENSTAR AND THE NOTES
THERETO, AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<RECEIVABLES> 9,184
<ALLOWANCES> (400)
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<CURRENT-ASSETS> 16,967
<PP&E> 4,024
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0
0
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<TOTAL-REVENUES> 54,891
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<TOTAL-COSTS> 39,525
<OTHER-EXPENSES> 14,198
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<INTEREST-EXPENSE> (247)
<INCOME-PRETAX> 786
<INCOME-TAX> 405
<INCOME-CONTINUING> 1,572
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</TABLE>
<PAGE> 1
PROXY NORTH STAR UNIVERSAL, INC. EXHIBIT 99.1
5353 WAYZATA BOULEVARD
MINNEAPOLIS, MINNESOTA 55416
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeffrey J. Michael and Peter E. Flynn, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to present and to vote, as designated below, all the
shares of Common Stock, par value $.25 per share ("NSU Common Stock"), of North
Star Universal, Inc. ("NSU"), held of record by the undersigned on April 15,
1996, at the annual meeting of shareholders to be held on June 4, 1996, or any
adjournment thereof.
<TABLE>
<S> <C>
1. A proposal to approve an Agreement and Plan of Reorganization dated as of December 21, 1995, (the
"Reorganization Agreement") between NSU, Michael Foods, Inc. ("Michael") and NSU Merger Co. ("Merger Co."), and
the "Merger" (as defined below), pursuant to which (i) Merger Co. will be merged with and into Michael and
Michael will become a wholly-owned subsidiary of NSU (the "Merger"), (ii) each stockholder of Michael (other
than NSU) will receive, in exchange for each share of Michael Common Stock held by such stockholder, one share
of NSU Common Stock, (iii) NSU will change its name to Michael Foods, Inc. (NSU after the consummation of the
Merger is referred to hereinafter as "New Michael") and will continue the business previously conducted by
Michael, (iv) prior to the consummation of the Merger, NSU will transfer all of its assets and liabilities
other than certain indebtedness (not to be in excess of $38 million or less than $25 million) and other agreed
upon assets and liabilities to ENStar Inc., another wholly owned subsidiary of NSU ("ENStar"), (v) the
outstanding common stock of ENStar will be distributed pro rata to the shareholders of NSU of record as of a
record date just prior to the effective date of the Merger (the "Distribution"), (vi) immediately prior to the
effective time of the Merger, NSU will effectuate a reverse stock split (the "Reverse Stock Split"), the ratio
of the Reverse Stock Split to be determined pursuant to the terms of the Reorganization Agreement:
/ / FOR / / AGAINST / / ABSTAIN
2. A proposal to approve the Reverse Stock Split:
/ / FOR / / AGAINST / / ABSTAIN
3. A proposal to approve the Distribution:
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(continued, and to be dated and signed, on other side)
<TABLE>
<S> <C> <C>
4. A proposal to approve the amendment to and restatement of the existing Restated Articles of Incorporation of NSU
in the form attached to the accompanying Proxy Statement/Prospectus as Exhibit D to Appendix I thereto:
/ / FOR / / AGAINST / / ABSTAIN
5. Election of Directors:
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote all nominees listed below
Miles E. Efron Peter E. Flynn James H. Michael Fred E. Stout Richard J. Braun Jeffrey J. Michael
(INSTRUCTION: To withhold authority to vote for any individual nominee write that nominee's name on the space
provided below.)
- ------------------------------------------------------------------------------------------------------------------
6. In their discretion the proxies are authorized to vote upon such other business as may properly come before the
meeting.
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL OF THE PROPOSALS DESCRIBED ABOVE AND FOR ALL OF THE NOMINEES FOR
ELECTION TO THE BOARD OF DIRECTORS.
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREON. WHEN SHARES ARE HELD
BY JOINT TENANTS, BOTH SHOULD SIGN.
WHEN SIGNING AS ATTORNEY, AS
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS
SUCH. IF A CORPORATION, PLEASE SIGN
IN FULL CORPORATE NAME BY PRESIDENT
OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
SIGNATURE:
--------------------------
DATE:
-------------------------------
SIGNATURE:
--------------------------
DATE:
-------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
